GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH : EMPIRICAL EVIDENCE FROM MALAYSIA

BONG, CHOW LIANG (2008) GOVERNMENT EXPENDITURE AND ECONOMIC GROWTH : EMPIRICAL EVIDENCE FROM MALAYSIA. [Final Year Project Report] (Unpublished)

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Abstract

This study aims to investigate the relationship and causality pattern between government expenditure and economic growth in Malaysia for 36 years covering from 1970 to year 2006. The period of 1970 to 2006 has been a period of transformation for Malaysia to transform itself from an economy that are heavily dependent on primary sectors activities to a multi-sector economy. The investigation is conducted by utilizing the modern time-series econometric techniques. The empirical results derived from Augmented Dickey Fuller CADF) and Phillips-Perron CPP) unit root test implies that all of the data are stationary in their first difference. Through the execution of Johansen and Juselius Cointegration test, the empirical results reveal the presence of one cointegrating vector in the long-run period. Furthennore, the empirical results obtained from the execution of Granger causality test reveals a unidirectional causality from gross domestic product to government expenditure, which support the Wagner hypothesis and reject the Keynesian hypothesis in Malaysia. Hence, fhe estimation based on nonnalized equation reveals the existence of positive relationship between government expenditure and economic growth in Malaysia.

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