Government Consumption and Economic Growth in Malaysia (2007-2015)
Background
Government consumption in Malaysia increased to RM43,374 million in the third quarter of 2020 from RM40,364 million in the second quarter of 2020. (Department of Statistics, Malaysia, 2020)
Government consumption as percent of GDP: The average value for Malaysia (during 1960 – 2019) was 14.17 percent with a minimum of 9.77 percent in 1998 and a maximum of 19.25 percent in 1972. The latest value from 2019 is 11.7 percent. For comparison, the world average in 2019 based on 133 countries is 16.07 percent. (The global economy, 2020)
Economy of Malaysia is the 4th largest after Singapore, Indonesia and Thailand in Southeast Asia.
Primary sector was as a backbone in Malaysia on 1980s, then move to secondary sector on 1990s.
In 2000 some transformation changed to tertiary sector.
Malaysia was also ranked as #32 of Best Countries out of 80 in 2019 (https://www.usnews.com/news/best-countries/malaysia)
Malaysia ranked 33 out of 131 countries in 2020 Global Innovation Index (GII) (NST, Dec 10).
Methodology Data Analysis:
Unit Root Test
Johansen Cointegration Test
ARDL
Granger Causality (Toda Yamamoto)
Normality Test (Jarque Bera)
Multicollinearity
Heteroscedasticity
Autocorrelation Result:
There is a positive and significant relationship between government consumption (GOV) and Economic growth (GDP) in Malaysia.
There is a long run relationship between GOV and GDP There is a positive relationship
between GOV and GDP There is a short run relationship
between GOV and GDP
Source: https://www.theglobaleconomy.com/Malaysia/government_size/
Literature
There is a significant positive relationship between government consumption and economic growth. (Taufiq Carnegie Dawood, 2018; Kojo Menyah, 2013; Dalamagas, 2000; Saas A. Alshahrani, 2014; Mustafi, 2015; Hao, G.K.
et.al., 2013).
However, Hasnul (2015) found that there is a negative correlation between government expenditure and economic growth in Malaysia for the last 45 years (1970 – 2014).
The more increase in government consumption will decrease the economic performance (Lowell E. Gallaway, 1998).
Others argued that government consumption is not the only determinant to economic growth (Kogid, M. 2010) thus other factors may have significant role compared to consumption.
Definition: Government consumption includes government current expenditures for purchases of goods and services, national defence and security (the global economy, 2020).
By:
Suhaidah Kauli and Dayangku Aslinah Abd. Rahim*
Faculty of Business, Economics and Accountancy, UMS
Further inquiry, please contact corresponding author* at [email protected]
