Trade Openness and the Economic Growth Nexus in Malaysia

Pek, Samuel Jing Yang (2026) Trade Openness and the Economic Growth Nexus in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

Text Samuel Pek Jing Yang 23WBR09900 Full.pdf Restricted to Registered users only Download (4MB)

Abstract

This study examines the relationship between trade openness and economic growth in Malaysia by investigating the roles of trade openness, foreign direct investment (FDI), and gross fixed capital formation (GFCF) from 1993 to 2024. Annual data obtained from the World Development Indicators (WDI) are analyzed using the Autoregressive Distributed Lag (ARDL) model to estimate both long-run and short-run relationships. In addition, the Granger causality test is employed to determine the direction of causality among the variables. The empirical findings confirm the existence of a longrun relationship among economic growth, trade openness, FDI, and GFCF. Trade openness is found to have a negative and statistically significant effect on economic growth in both the long run and the short run. In contrast, FDI has a positive and significant long-run impact on economic growth. GFCF shows a positive and significant short-run effect but a negative and significant long-run effect. The Granger causality results indicate a unidirectional causal relationship running from economic growth to trade openness and from GFCF to economic growth. Overall, the findings suggest that trade openness alone may not be sufficient to sustain economic growth in Malaysia. Therefore, policymakers should adopt a balanced trade strategy by enhancing export competitiveness and reducing excessive import dependence. At the same time, efforts to attract high-quality FDI and improve the efficiency of domestic investment are essential to support sustainable and resilient long-term economic growth