The Impact of Government Expenditure on Economic Growth in Malaysia
Abstract
This study experimentally investigates the relationship between economic growth and government spending in Malaysia from 1990 to 2022 using time series data. The study analyzes the impact of total government spending on economic growth, covering housing, healthcare, social services, military, and education while identifying which sector has the most effect on economic growth. The Autoregressive Distributed Lag (ARDL) method is employed to evaluate the effects of these expenditures. The findings demonstrate that, in the short run, all variables significantly affect economic growth, hence refuting the null hypothesis. However, only trade openness and labor spending positively impact long-term economic growth. Research indicates that housing and education expenditures are the primary long-term drivers of economic growth in Malaysia. The data suggest that the Malaysian economy contradicts the Keynesian theory, as less government spending appears to improve the real GDP growth rate. The inverse relationship between government spending and economic growth indicates that government expenditure may not be the primary catalyst for economic growth, hence supporting Wagner’s law. These findings provide policymakers with essential insights for optimizing government spending to improve economic development results.
Downloads
References
Abdul Latif, N. W., & Mohamed Yusof, N. Y. (2007). The impact of education on economic growth: The case of Malaysia.
Abdullah, H., Azam, M., & Zakariya, S. K. (2016). The impact of environmental quality on public health expenditure in Malaysia. Asia Pacific Journal of Advanced Business and Social Studies (APJABSS), 2(2), 365-379.
Ahuja, D., & Pandit, D. (2020). Public expenditure and economic growth: Evidence from developing countries. FIIB Business Review, 9(3), 228-236. DOI: https://doi.org/10.1177/2319714520938901
Alam, S., Sultana, A., & Butt, M. S. (2010). Does social expenditures promote economic growth? A multivariate panel cointegration analysis for Asian countries. European Journal of Social Sciences, 14(1), 44-54.
Alexiou, C. (2009). Government spending and economic growth: Econometric evidence from the South Eastern Europe. Journal of Economic and Social Research, 11(1), 1-16.
Alper, F. O., & Demiral, M. (2016). Public social expenditures and economic growth: Evidence from selected OECD countries. Research in World Economy, 7(2), 44-51. DOI: https://doi.org/10.5430/rwe.v7n2p44
Alshahrani, S., & Alsadiq, A. (2014). Economic growth and government spending in Saudi Arabia: An empirical investigation. International Monetary Fund Working Papers. DOI: https://doi.org/10.2139/ssrn.2393603
Andrews, D., Sánchez, A. C., & Johansson, Å. (2011). Housing markets and structural policies in OECD countries. OECD Economics Department Working Papers, 836.
Ayo, J. O., Obidi, J. A., & Rekwot, P. I. (2011). Effects of heat stress on the well?being, fertility, and hatchability of chickens in the Northern Guinea Savannah Zone of Nigeria: A review. International Scholarly Research Notices, 1, 838606. DOI: https://doi.org/10.5402/2011/838606
Ayuba, A., & Ayuba, A. (2014). The impact of social expenditures on economic growth in Nigeria: 1990-2009. Journal of Economics and Sustainable Development, 5(17), 60-73.
Aziz, N., & Asadullah, M. N. (2017). Military spending, armed conflict and economic growth in developing countries in the post-Cold War era. Journal of Economic Studies, 44(1), 47-68. DOI: https://doi.org/10.1108/JES-01-2015-0021
Babatunde, A. (2011). Trade openness, infrastructure, FDI and growth in sub-Saharan African countries. Journal of management policy and practice, 12(7), 27.
Benoit, E. (1978). Growth and defense in developing countries. Economic Development and Cultural Change, 26(2), 271-280. DOI: https://doi.org/10.1086/451015
Bloom, D. E., Canning, D., & Jamison, D. T. (2004). Health, wealth, and welfare. Finance and development, 41, 10-15.
Bloom, D., & Canning, D. (2003). Health as human capital and its impact on economic performance. The Geneva Papers on Risk and Insurance. Issues and Practice, 28(2), 304-315. DOI: https://doi.org/10.1111/1468-0440.00225
Bra?oveanu, L. O. (2010). The impact of defense expenditure on economic growth: A Romanian case study. Romanian Journal of Economic Forecasting, 13(1), 148-165.
Gisore, M. (2020). Analysis of county government expenditure and county economic growth in Kenya. Doctoral dissertation, Egerton University.
Grossman, M. (2004). The demand for health, 30 years later: A very personal retrospective and prospective reflection. Journal of Health Economics, 23(4), 629-636. DOI: https://doi.org/10.1016/j.jhealeco.2004.04.001
Hasnul, A. G. (2015). The effects of government expenditure on economic growth: The case of Malaysia. International Journal of Social Science and Humanity, 5(5), 38-45.
Huang, L. C., & Chang, F. H. (2014). Revisit the nexus of trade openness and GDP growth: Does the financial system matter? The Journal of International Trade and Economic Development, 23(7), 1038-1058. DOI: https://doi.org/10.1080/09638199.2013.830638
Hussin, M. Y. M., Muhammad, F., Hussin, M. F. A., & Razak, A. A. (2012). Education expenditure and economic growth: A causal analysis for Malaysia. Journal of Economics and Sustainable Development, 3(7), 71-81.
Idrees, A. S., & Siddiqi, M. W. (2013). Does public education expenditure cause economic growth? Comparison of developed and developing countries. Pakistan Journal of Commerce and Social Sciences, 7(1), 174-183.
Jajri, I., & Ismail, R. (2010). Impact of labor quality on labor productivity and economic growth. African Journal of Business Management, 4(4), 486.
Jiranyakul, K. (2020). Government expenditures and economic growth: A cointegration analysis for Thailand under the floating exchange rate regime. Available at SSRN: https://ssrn.com/abstract=3597334 DOI: https://doi.org/10.2139/ssrn.3597334
Kamis, R., Abd Majid, H. N., & Ramlee, N. I. (2020). Government expenditures and economic growth. Social and Management Research Journal, 17(2), 241-262. https://doi.org/10.24191/smrj.v17i2.10533 DOI: https://doi.org/10.24191/smrj.v17i2.10533
Kannan, P., Scott, A., & Terrones, M. E. (2014). From recession to recovery: How soon and how strong. Financial Crises: Causes, Consequences, and Policy Responses, 239-276.
Magazzino, C., Giolli, L., & Mele, M. (2015). Wagner’s Law and Peacock and Wiseman’s displacement effect in European Union countries: A panel data study. International journal of economics and financial issues, 5(3), 812-819.
Mallick, J., Varghese, P., & Viswanathan, M. (2016). The impact of education expenditures on economic development: Evidence from 14 Asian countries. Journal of Economics and Development Studies, 4(2), 14-28.
Nadilla, R., & Ichsan, I. (2023). The effect of inflation, labor force participation rate and exports on economic growth in Indonesia, Journal of Malikussaleh Public Economics,6(2), 20-32. DOI: https://doi.org/10.29103/jmpe.v6i2.13754
Odo, S. I., Nwachukwu, J. O., E Agbi, P., & Okoro, T. O. (2016). Analysis of government expenditure and economic growth in Nigeria: Application of Co integration Methodology. Asian Research Journal of Arts & Social Sciences, 1(4), 1-17. DOI: https://doi.org/10.9734/ARJASS/2016/29486
Paudel, R. C. (2023). Capital expenditure and economic growth: A disaggregated analysis for Nepal. Cogent Economics & Finance, 11(1), 2191449. DOI: https://doi.org/10.1080/23322039.2023.2191449
Smith, A. (2003). An inquiry into the nature and causes of the wealth of nations (E. Canaan, Ed). Modern Library.
Suwandaru, A., Alghamdi, T., & Nurwanto, N. (2021). Empirical analysis on public expenditure for education and economic growth: Evidence from Indonesia. Economies, 9(4), 146. DOI: https://doi.org/10.3390/economies9040146
Tahir, M., & Azid, T. (2015). The relationship between international trade openness and economic growth in the developing economies: Some new dimensions. Journal of Chinese Economic and Foreign Trade Studies, 8(2), 123-139. DOI: https://doi.org/10.1108/JCEFTS-02-2015-0004
Uwatt, U. B. (2019). The housing sector, economic growth and development: conceptual issues and theoretical underpinnings. Economic and Financial Review, 57(4), 4.
Uzuner, G., Bekun, F. V., & Saint Akadiri, S. (2017). Public expenditures and economic growth: Was Wagner right? Evidence from Turkey. Academic Journal of Economic Studies, 3(2), 36-40.
Velenyi, E. V. (2016). Health care spending and economic growth. In World Scientific Handbook of Global Health Economics and Public Policy: Volume 1: The Economics of Health and Health Systems (pp.1-154). DOI: https://doi.org/10.1142/9789813140493_0001
Waweru, D. (2021). Government capital expenditure and economic growth: An empirical investigation. Asian Journal of Economics, Business and Accounting, 21(8), 29-36. DOI: https://doi.org/10.9734/ajeba/2021/v21i830409
Wong, H. T. (2005). Openness, financial development and economic growth in Malaysia. International Journal of Business and Society, 6(1), 93.
Wu, S. Y., Tang, J. H., & Lin, E. S. (2010). The impact of government expenditure on economic growth: How sensitive to the level of development? Journal of Policy Modeling, 32(6), 804-817. DOI: https://doi.org/10.1016/j.jpolmod.2010.05.011
Yildirim, J, & Ocal, N. (2016). Military expenditures, economic growth and spatial spillover. Defence and Peace Economics, 27(1), 87-104. DOI: https://doi.org/10.1080/10242694.2014.960246
Copyright (c) 2024 Siti Nur Ayunie Binti Zawawi, Chong Siew Huay, Tun Yin Li
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.
