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International Journal of Business and Economy eISSN: 2682-8359 [Vol. 2 No. 3 September 2020]
http://myjms.mohe.gov.my/index.php/ijbec
THE RELATIONSHIP BETWEEN MACROECONOMIC FACTORS AND GRADUATE EMPLOYABILITY: EVIDENCE
FROM MALAYSIA
Saizal Pinjaman1*, Shairil Izwan Taasim2, Toh Pei Sung3 and Sarma Aralas4
1 3 4 Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, Kota Kinabalu, MALAYSIA
2 School of Business and Economics, Universiti Putra Malaysia, Serdang, MALAYSIA
*Corresponding author: [email protected]
Article Information:
Article history:
Received date : 17 April 2020 Revised date : 1 September 2020 Accepted date : 3 September 2020 Published date : 7 September 2020
To cite this document:
Pinjaman, S., Taasim, S., Toh, P., &
Aralas, S. (2020). THE RELATIONSHIP BETWEEN
MACROECONOMIC FACTORS AND GRADUATE EMPLOYABILITY:
EVIDENCE FROM
MALAYSIA. International Journal Of Business And Economy, 2(3), 68-81.
Abstract: The objective of this research is to investigate the impact of export, foreign direct investment, and gross domestic product on graduate employability in Malaysia based on the data from 1984 to 2017. The long-run relationship between the variables is analysed using the cointegration analysis and it is demonstrated that the macroeconomic factors are jointly significant to determine graduate employability. Analysing the individual impact of macroeconomic factors, export and foreign direct investment are believed to be important in explaining the movement of graduate employability while the impact of gross domestic product is identified to be not significant.
On the other hand, error correction modeling is applied to investigate the relationship in the short-run and it is demonstrated that all macroeconomic factors are individually significant in explaining graduate employability. The findings on this research can be used by policymakers to understand the impact of macroeconomic factors on graduate employability and construct relevant policy to address issues related to it.
Keywords: Export, Foreign Direct Investment, Gross Domestic Product, Graduate Employability.
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1. Introduction
Among the main efforts in improving the economic well-being of a country is to increase the employment opportunities or employability of the people. In general, employability can be referred to as the degree of perceived ability to gain and maintain employment throughout one’s career.
This is in line with Hillage and Pollard (1998) who define employability as the capability to move self-sufficiently within the labor market to gain the knowledge, skills, and attitudes through sustainable employment. Similarly, Harvey (2001) describes employability as the propensity of the people to obtain a job. Defining based on the aspect of an individual, Yorke (2006) describes individual’s employability as a set of achievement in terms of skills, knowledge and personal traits that enables the person to gain successful employment and leads to sustainable performance.
In Malaysia, the government initiated numerous regulatory frameworks and approaches to improve the level of employability with one of their main focuses is on the enhancement of the educational quality. Plans such as the National Educational Policy and National Educational Blueprint have been initiated through the Ministry of Education and the Ministry of Higher Learning and these strategies are proven to be effective in cultivating the educational achievement of Malaysia as can be seen on the improvement of the PISA score as well as the ratings from the QS University and the Times University rankings throughout the years. Despite so, the improvement of the educational quality is not much translated into higher job security with the rate of employment for graduates are somewhat uncertain for many years. As shown in Figure 1, Ph.D. holders exhibit better chances of getting employed with the highest rate of employment for the degree was in 2009 with 96.26 percent before the rate moves in a downward trend to reach the lowest point at 80.93 percent in 2018. Master’s degree holders meanwhile exhibit the highest rate in 2008 with 92.7 percent and an average of 87 percent from 2006 to 2018. The job demand based on diploma and certificate holders has a better chance of getting employed compared to bachelor’s degrees where the average employability rate is 77 percent for both while the average employability rate for bachelor’s degrees is 72 percent only. From 2013 to 2017, certificate holders have the highest employability rate and exceeded those with Ph.D. with more than 90 percent of the certificate holder secure jobs. However, the rate of employability fell dramatically in 2018 with certificate holders is taking the second lowest position. Meanwhile, the highest rate of employability for a bachelor’s degree was in 2011 at 75.53 percent and the lowest was in 2013 with only 68.58 percent of degree holders are employed.
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Figure 1: Employed persons by the highest certificate obtained, Malaysia, 1982–2018 Source: Department of Statistics, 2019
The uncertain level of graduate employability leads to an important question, that is, what factors that influence it? There are literatures who identified that employability can be associated with macroeconomic factors. Researchers such as Dizaji and Badri (2014) and Wang et al. (2018) identified the significant impact of exports and on the other hand, Jayaraman and Singh (2007) and Liu and Lu (2011) established a connection between foreign direct investment and employability. In analysing the impact of economic development, researchers such as Malec et al.
(2016) and Rekha and Dev (2017) concluded that GDP is indeed significant in influencing the level of graduate employability. However, the concern on previous literatures is that the analyses are mainly based on employability in general. There is scarce literature specifically conducted in identifying the relationship between macroeconomic factors and graduate employability, particularly in the case of Malaysia.
Apart from that, the findings are somewhat ambiguous between previous studies. For example, Waldkirch et al. (2010) and Mpanju (2012) argue that FDI has a positive relationship with employment. However, this is not in line with the argument of Liu and Lu (2011) and Wei (2013) who suggested otherwise, particularly on certain economic sectors. This ambiguity is also present when it comes to the impact of export and gross domestic product as can be seen on Papola (2013), Dizaji and Badri (2014), Ko et al. (2015), Rekha and Dev (2017), and Tandoğan (2019).
Thus, the main objective of the current paper is to identify the impact of macroeconomic variables on graduate employability in the case of Malaysia. Apart from contributing to the body of knowledge, identifying the relationship between macroeconomic factors and graduate employability is important since the findings can be used as a source of reference for the policymakers in creating relevant measures to address the issue of uncertain graduate employability. Without proper knowledge on the issue, policies that are created may not be effective as it fails to take into account the influence of macroeconomic factors that are potentially significant.
0 20 40 60 80 100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Graduate Employability (%) in Malaysia
PhD Master Bachelor Diploma Certificate
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The remainder of the current paper is organized as follows: Section 2 discusses previous literature on macroeconomic determinants of employment. Section 3 meanwhile describes the data as well as causal relationship assessment methods. This is followed by Section 4 which presents analysis of the estimation results, and Section 5 that concludes the overall findings.
2. Literature Review
2.1 Relationship between Export and Employment
Dizaji and Badri (2014) studied the effect of exports on employment in Iran’s economy in the period 1976-2005 by utilizing autoregressive distributed lag modeling (ARDL). Based on the analysis, it is suggested that export has a positive and significant effect on employment in the long- term where an increase in export would cause long term increment in employment. Dizaji and Badri (2014) add that the increase in demand due to the increment in export will ultimately lift the wage levels and employment.
Ko et al. (2015) meanwhile analysed the impact of export towards employment between ASEAN members and the world market based on the fixed effects model as the model allows for the countries’ specific effects to correlate with the variables of interest. Ko et al. (2015) identify that the relationship between export and employment depends on the trade involved. It is argued that IntraASEAN5 exports have insignificant employment levels because exports from these countries are capital-intensive goods. In the case of ASEAN trade with the world market however, the findings contradicted with Dizaji and Badri (2014) since Ko et al. (2015) demonstrate that the export produces a negative impact on the level of employment.
Analysing the effects of exports on employment in the Korean manufacturing sector, Whang et al.
(2018) used industry-level data to construct the long-run labour demand equation. Similar to Ko et al. (2015), Whang et al. (2018) also utilized panel data analysis where the effect of exports on employment is estimated using the differenced GMM estimator. The empirical study revealed that an improvement in exports can reduce employment in the most capital-intensive industry like petroleum. Whang et al. (2018) also believe that the increase in export does not create sufficient jobs due to the nature of the capital intensity of the export industry. However, the employment effect of exports is indeed relatively high in an industry heavily related to Small and Medium Enterprises (SMEs) since the industry is more labour intensive.
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A more recent study entitled Turning Export Potential into Employment: A Case Study for Jordan was conducted by the International Trade Centre (2018). In the study, the International Trade Centre (2018) constructed a comprehensive methodology to distinguish Jordan’s employment opportunities that can be contributed to exports. Their findings showed that the impact of export on employment depends on sectors and sectors that create high growth do not necessarily lead to high employability. International Trade Centre (2018) identified that sectors such as clothing, live animals, and jewellery are creating the highest employment. Increasing regional exports in these three sectors would generate over 47,000 jobs across the Jordanian economy. Food, electrical machinery, and plastic products meanwhile generate the lowest job creation potential in the country. International Trade Centre (2018) also demonstrates that there is a difference in job creation potential between women and men across all sectors with men exhibit a higher chance of getting a job than women.
2.2 Relationship between Foreign Direct Investment (FDI) and Employment
In analysing the impact of foreign direct investment (FDI) and employment creation, Jayaraman and Singh (2007) utilized cointegration analysis based on the data from Pacific Island countries.
Jayaraman and Singh (2007) identified that there is a significant relationship between foreign direct investment and employment. The results also revealed that foreign direct investment did have a positive impact on Fiji’s employment where an increase in foreign direct investment causes employment to be higher in the long-run. However, that is not the case in the short-run where Jayaraman and Singh (2007) argue that foreign direct investment is found to be insignificant in explaining the movement of employability.
Wong and Tang (2011) meanwhile have studied foreign direct investment and employment by focusing on the manufacturing and services sectors in Singapore from 1997-2005. Similar to Jayaraman and Singh (2007), Wong and Tang (2011) also utilized a cointegration analysis or more specifically the ARDL model in order to identify the relationship between the variables in the long- run. The results suggested that an increase in foreign direct investment inflows could lead to higher employment in Singapore if it complements domestic investment. In line with the finding of Whang et al. (2018) in the case of export, Wong and Tang (2011) argue that the employment effects of investment inflows are also identified to be greater if it is focused on labor-intensive industries. According to Wong and Tang (2011), the short-run relationship also runs from foreign direct investment inflow to employment in the manufacturing sector which in turn linked to employment in the services sector. This supports the view that as the manufacturing industries move up the value chain, they tend to generate employment spill-over effects on the services sector.
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Analysing the home-country employment effect in China, Liu and Lu (2011) used cointegration analysis similar to Jayaraman and Singh (2007) and Wong and Tang (2011). The difference is that Liu and Lu (2011) employed Johansen's cointegration technique and Toda and Yamamoto's Granger causality tests to the data for the period from 1982 to 2007. Liu and Lu (2011) argued that the relationship is not uniformed across sectors where the results showed that China’s foreign direct investment has no employment effect in the primary industry but has significant employment effects in the second and tertiary industries.
2.3 Relationship between Gross Domestic Product (GDP) and Employment
In identifying the linkage between economic growth and employment in India, Papola (2013) reviewed the long-run and short-run relationship using the concept of employment elasticity in different sectors of the economy. By utilizing the analysis based on 40 years of data, Papola (2013) identified that there is a long-term decline in the rate of employment growth, and it is accompanied by the acceleration in the rate of economic growth. From 1972 to 1983, employment growth was 2.4 percent only while GDP increased to 4.7 percent. The rate continuously declined to 0.22 percent in 2010 even though the rate of increase in GDP was as high as 9 percent. Papola (2013) also demonstrated the declining trend in the employment content of growth where the employment elasticity fell drastically from 0.52 in 1973 – 1983 to almost zero in 2010.
To analyse the relationship between economic development and employment in Egypt from 2000 to 2013, Malec et al. (2016) meanwhile employed linear regression modeling. In contrast to Papola (2013), the results suggested a strong positive relationship between gross domestic product and employment. This implies that GDP growth will cause employment to increase as well.
Additionally, Malec et al. (2016) suggested that there is a lag in the effect of economic development towards employment where an increase in the GDP will only result in the increase in employment after a year. The elasticity of employment on the movement of GDP is calculated at 0.34 percent where an increase in GDP by 1 percent leads to a similar movement in employment by 0.34 percent.
This finding is similar to Rekha and Dev (2017) who studied the impact of foreign direct investment and gross domestic product (GDP) on employment generation in India in the post- reform period. Based on the linear regression model, Rekha and Dev (2017) suggested that GDP has a significant impact on employment generation in India. By referring to the coefficient value, one unit of change in the GDP is identified to raise employment by 0.566 units. This implies that economic development has a moderate impact on the movement of employment.
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As can be seen on previous literature, the relationship between macroeconomic factors on employment is somewhat ambiguous not just in terms of the significance of the impact, but also on the direction of the relationship between the variables studied. Apart from that, the focus of past studies is more on analysing the impact of macroeconomic factors on employment in general while the influence on graduate employability is scarcely explored. Thus, the current study fills in the gap in the literature by investigating the short run and long run relationship between macroeconomic factors and graduate employability in the case of Malaysia.
3. Data and Methodology
The analysis covers 33 years of graduate employability and macroeconomic data from 1984 until 2017. There are three macroeconomic factors selected based on previous studies, namely i) Export ii) Foreign Direct Investment, and iii) real GDP per capita as a proxy to economic development.
The graduate employability and macroeconomic variables are first transformed into natural logarithm, where the long-run and short-run relationship between macroeconomic factors and graduate employability in Malaysia are analysed by using the cointegration and error correction modeling1.
3.1 Autoregressive Distributed Lag (ARDL) Model for Long-Run Relationship
The cointegration test used in this research is based on the Autoregressive Distributed Lag Model (ARDL). Besides its ability to analyse causal relation for variables in different order of integration (Pesaran and Pesaran, 1997), the ARDL model also solves the problem of autocorrelated errors that is suffered by the finite distributed lag model (Hill et al., 2008). Pesaran and Shin (1997) added that the ARDL estimate for long-run coefficients are also consistent whether the regressors are all I(0) or I(1).
The estimation of the long-run relationship between variables by using the basic ARDL (p,q) model is shown below:
𝑦𝑡= 𝛼 + ∑ 𝜃𝑖
𝑝
𝑖=1
𝑦𝑡−𝑖+ ∑ 𝛽𝑖
𝑞
𝑖=0
𝑥𝑡−𝑖+ 𝜆1𝑦𝑡−1+ 𝜆2𝑥𝑡−1+ 𝜀𝑡
(1) Where 𝜀𝑡 is the error term and 𝛼, 𝜃, 𝛽 and 𝜆 are the coefficients that need to be estimated.
1 According to Hill et al. (2008), cointegration analysis is a test to identify the stationarity of error term where error term that is stationary indicates the cointegration between the dependent variable and the independent variable. When two variables are proved to be cointegrated, it means that their value will not diverge too far from each other and demonstrates a fundamental relationship.
On the other hand, error term that is nonstationary implies that the two variables are not cointegrated.
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Optimal lags in the ARDL model for this analysis are determined by the Akaike Info Criterion (AIC) where the model with a certain number of lags in the right-hand side of the variable that produces the lowest value of AIC is considered optimal. The current paper sets the maximum number of lags into four2.
In order to identify the existence of a long-run relationship, bounds test of Pesaran et al. (2001) is conducted to test the following hypotheses:
i. H0: λ1 = λ2 = 0, indicating the non-existence of long-run relationship among variables.
ii. H1: λ1 ≠ λ2 ≠ 0, indicating the existence of long-run relationships among variables.
The hypotheses are tested by comparing the estimated F-statistics of bounds test with two critical bounds values for a given significance level, namely lower bound and upper bounds critical values, obtained from Pesaran et al. (2001). The null hypothesis is rejected when the value of F-statistics is higher than the upper critical bound and the rejection of the null hypothesis indicates there is a long-run relationship between graduate employability and macroeconomic factors.
On the other hand, if the F-statistics is smaller than the lower critical bound, then the null hypothesis is failed to be rejected and indicates no significant long-run relationship between the variables. However, when F-statistics is between the upper and lower critical bound, then the relationship between the variables is inconclusive or undetermined in the long-run.
3.2 Short-Run Relationship and Speed of Adjustment
The short-run relationship is obtained from an Error Correction Model (ECM) as shown in Equation (2) with Error Correction Terms (ECT) represents the speed of adjustment for the model to reach equilibrium or long-run relationship. Based on Engle and Granger (1987), the error correction model shows the response of the dependent variable to shocks of the independent variable and it also indicates the proportion of the disequilibrium from one period that is corrected in the next period.
∆𝑦𝑡 = 𝛼 + ∑ 𝜃𝑖
𝑝
𝑖=1
∆𝑦𝑡−𝑖+ ∑ 𝛽𝑖
𝑞
𝑖=0
∆𝑥𝑡−𝑖+ 𝜆1𝐸𝐶𝑇𝑡−1+ 𝜀𝑡
(2) Where 𝐸𝐶𝑇 𝑡−1= 𝜀𝑡−1= 𝑦𝑡−1− 𝛼 − 𝛽𝑥𝑡−1.
2 The Schwarz criterion is not included in the test to avoid the risk of under-fitting the model as Schwarz criterion tends to select a simpler model specification. This is consistent with Koehler and Murphree (1988), who said that Schwarz criterion leads to lower model for forecasting.
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Least Square estimation is carried out to analyse the ECM model with the number of lags in the model is chosen based on the lowest AIC values. If 𝛽 ≠ 0, then it shows that 𝑥 is significant in influencing 𝑦 in the short run. This implies that there is a short-run relationship between graduate employability and macroeconomic variables.
Meanwhile for the ECT terms, −1 < 𝜆 < 0 indicates a significant adjustment of the model towards equilibrium in the long run. Since ECT indicates the proportion of the disequilibrium from one period that is corrected in the next period as mentioned by Engle and Granger (1987), then the time period for the disequilibrium to be completely corrected is equal to 1 divided by the value of the ECT coefficient, or (1/ 𝜆). As this research is using annual data, then (1/ 𝜆) shows the number of year(s) for the model to reach its equilibrium or long-run relationship.
3.3 Diagnostic and Stability Tests
The existence of serial correlation in the ARDL and the ECM models is tested by using the Breusch-Godfrey serial correlation LM test meanwhile the stability of the model is examined by using the CUSUM test. Ramsey (1969) Regression Specification Error Test (RESET) on the other hand is utilized to identify whether the model is correctly specified or not. In order to test the existence of heteroskedasticity, the current paper conducted the Breusch-Pagan test with the null hypothesis suggesting the non-existence of heteroskedasticity in the model.
4. Results Analysis
The unit root test in this research is utilized based on Augmented Dickey-Fuller (1979) and Phillips-Perron (1988). From Table 1, it is apparent that the variables of interest are in different stationarity levels. Graduate employability, export, and gross domestic product contain unit root at level and stationary at the first difference, I(1). Foreign direct investment meanwhile is stationary at level, I(0). Due to the mixed stationarity levels of the data used, the ARDL model is selected to investigate the relationship between graduate employability and macroeconomic factors in the long run.
Table 1: ADF and Phillips-Perron unit root tests
Variable ADF Test Statistics Phillips-Perron Test Statistics At Level At 1st difference At level At 1st difference Graduates
Employability -0.9337 -5.7271*** -1.0795 -6.9875***
Export -2.2196 -5.3979*** -2.3322 -5.3967***
Foreign Direct
Investment -4.4727*** -7.5129*** -4.4161*** -17.8024***
Gross Domestic
Product per Capita -1.9282 -4.8455*** -2.0880 -4.8473***
Note: The data includes trend and intercept with the number of lags in the ADF test is selected based on Schwarz information criterion. Bartlett Kernel is used in the Phillips-Perron test to determine the spectral estimation with Newey-West Bandwith. Null Hypothesis: The model tested contains unit root.
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The joint significance of the independent variables in explaining the graduate employability is analyzed based on the bound test of the ARDL model. As shown in Table 2, the F-statistics exceeds the upper critical bound at any significance level and this implies that the null hypothesis of no cointegration between variables is rejected. This suggests that the macroeconomic variables are jointly significant in explaining graduate employability in Malaysia in the long-run. Based on the diagnostic tests, the model is free from the problems of serial correlation and heteroskedasticity as shown by the Breusch-Godfrey and Breusch-Pagan-Godfrey tests. The model is also correctly specified as suggested based on the Ramsey RESET test.
Table 2: Long-Run Relationship between Graduate Employability and Macroeconomic Movement ARDL Model: (4,3,3,4)
F-Statistic: 8.5563
Critical Value Lower Critical Bound Upper Critical Bound
10% Significance 2.72 3.77
5% Significance 3.23 4.35
1% Significance 4.29 5.61
Note: The long-run relationship between graduate employability and macroeconomic factors is analyzed based on Bounds test of cointegration with hypothesis null assumes no correlation between variables. The number of lags for the independent variables in the model is selected based on the lowest Akaike info criterion value with the maximum number of lags is set to four.
By referring to the long-run coefficient of the independent variable in Table 3, export and foreign direct investment are significant in explaining graduate employability in the long-run at 1 percent level. Export is identified to have a positive relationship with graduate employability and based on the value of the coefficient that is less than 1, graduate employability is not elastic to export level. When export increases by 1 percent, graduate employability will move to a similar direction by 0.62 percent in the long run.
Table 3: Long-Run Coefficient
Independent Variable Coefficient
Export 0.6290***
Foreign Direct Investment -0.2161***
Real Gross Domestic Product per Capita 0.5509
Constant -1.6104***
Note: Long run coefficients of macroeconomic factors with respect to Graduates Employability is analyzed based on the ARDL (4,3,3,4,) model. Standard errors are shown in parentheses. *, **, *** indicate statistical significance at 10%, 5% and 1% level, respectively.
On the other hand, foreign direct investment is identified to have a negative relationship with graduate employability where an increase in the level of investment by 1 percent causes graduate employability to fall by 0.22 percent in the long-run. Similar to export, graduate employability is also not elastic towards the change in foreign direct investment. The positive value of the coefficient for gross domestic product meanwhile implies the positive relationship between the variable and graduate employability. However, it is demonstrated that the gross domestic product is not important in explaining the long-run movement of graduate employability as shown by the coefficient value that is not significant at any level.
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Table 4: Short Run Relationship between Graduate Employability and Individual Macroeconomic Movement Macroeconomic Factor Wald Test F-statistics (Probability)
Export 15.0830
(0.0001)
Foreign Direct Investment 21.6484
(0.0000)
Real Domestic Product per Capita 26.0161
(0.0000)
Note: Short-run relationship between macroeconomic factors and graduate employability is analyzed based on the F-statistics obtained from Wald test with hypothesis null assumes no causal relationship between variables. Probability value is shown in parenthesis with 0.10(10%), 0.05(5%) and 0.01(1%) significance level.
Table 4 meanwhile shows the result of the Wald test used to identify the significance of individual macroeconomic movements towards graduate employability in the short run. By referring to the probability value of the F-Statistics, the null hypothesis that assumes no causal relation between graduate employability and macroeconomic factors is rejected at 1 percent significance level. This indicates that movements in individual macroeconomic factors are significantly transmitted into the graduate employability. In other words, changes in export, foreign direct investment, and gross domestic product affect the level of graduate employability in the short run3.
TABLE 5: Short Run Adjustment
Variable Coefficient
Error Correction Term -0.3522***
Note: The coefficient for ECT is identified by inserting the lag value of the ECT as one of the independent variables in the Error Correction Model. Standard errors are shown in parentheses. *, **, *** indicate statistical significance at 10%, 5% and 1% level, respectively.
Based on Table 5, the error correction term is significant at 1 percent level where the negative sign on its coefficient indicates the correction of the model into long-run equilibrium when short-run macroeconomic movements occurred. However, the speed of correction is rather slow since disequilibrium that occurs due to a short-term deviation in the macroeconomic factors is fully corrected within 2.86 years.
3By referring to the diagnostic tests for the short-run model, Breusch-Godfrey LM test indicates that the model is free from serial correlation up to order 2 while the Breusch-Pagan test conducted suggests that the model did not exhibit heteroskedasticity. Based on the CUSUM stability test, on the other hand, all models are stable against the critical bound of 5 percent significance level. The Ramsey RESET test also suggests that the model is well specified in a linear model since the null hypothesis of correctly specified model is failed to be rejected at any significance level.
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5. Conclusion and Recommendation
Based on the study, it is clear that macroeconomic factors are important in determining the movement of graduate employability in Malaysia for both the long-run and short-run. By following the ARDL model of analysis, it is identified that macroeconomic factors are jointly significant in explaining graduate employability. Analysing the influence of individual macroeconomic factors however, export and foreign direct investment are significant in the long-run while economic development is not. The significant impact of export found in the current study coincides with Dizaji and Badri (2014), Whang et al. (2018), and The International Trade Centre (2018). The current paper believes that the increase in export causes the producers in Malaysia to demand more workforce to increase their productivity and ultimately increases graduate employability.
Similar to the finding from Oloni (2013) and Wei (2013), the negative sign for the coefficient suggests the inverse relationship or the crowding-out effect where an increase in the foreign direct investment causes graduate employability to fall. Çolak and Alakbarov (2017) believes that the inflow of foreign investment into the domestic market due to mergers and acquisitions has a negative impact on employment since the entry of foreign firms that are more productive, competitive and capital intensive leads to local firms losing part of their market share. The current paper believes that to compensate the impact of foreign investment, the government should find ways to draw foreign investment that are labour intensive apart from creating the initiative to stimulate domestic investment that can further improve graduate employability in the country. In line with Malec et al. (2016) and Rekha and Dev (2017), gross domestic product per capita used to represent economic development is identified to have a positive relationship with graduate employability. However, the relationship is insignificant in the long-run. According to Oloni (2013), this positive and insignificant impact happens since economic growth occurs more in sectors that are capital intensive rather than labour intensive. Similarly, the International Trade Centre (2018) believe that sectors that create high growth do not necessarily lead to high employability.
As expected, all of the macroeconomic factors are individually significant in explaining the movement of graduate employability in the short-run where the ECT term shows that 35 percent of the changes in the equilibrium due to movement in macroeconomic variables will be corrected in a one-year period. In summary, the current paper has met its objectives and the findings show that the macroeconomic factors are important determinants for graduate employability for both the long-run and short-run. The movement of these macroeconomic factors needs to be taken into account by policymakers in planning to improve graduate employability in Malaysia. To extend the study, the sample can be expanded by including social and political factors that may also be important. Apart from that, the impact of macroeconomic factors can also be analysed based on economic sectors since the interaction between graduate employability and the macroeconomic factors may potentially be varied between sectors.
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