Determinants of Economic Growth in Malaysia

Lai, Chin Yee (2021) Determinants of Economic Growth in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

The purpose of this study is to investigate the determinants of economy growth in Malaysia. This paper attempts to study the short-run relationship, long-run relationship and causality relationship between government spending, inflation, trade openness and economic growth in Malaysia. The annual time series data from year 1970 to 2019 have been used in this study This study adopted Gross Domestic Product (GDP) per capita as the dependent variable, while the independent variables are government spending (GOV), inflation (INF) and trade openness (TO). Towards these purposes, this study has employed Augmented Dickey Fuller (ADF) as the unit root test. Afterwards, Johansen cointegration test was employed to test the cointegration relationship among these variables. Meanwhile, Vector Error Correction Model (VECM) and Granger causality test have been used to examine the relation of the variables in long run and short run. The estimated results indicated that government spending is negatively related to the economic growth, while the inflation and trade openness are positively related to the economic growth in long run. Lastly, there is a unidirectional causality from inflation to GDP in Malaysia.