An Investigation on Trade Openness, Fiscal Policy and Economic Growth In Malaysia: Using an ARDL Bounds Testing Approach

Authors

  • Hussin Abdullah College of Arts and Sciences Universiti Utara Malaysia, Malaysia
  • Muszafarshah Mohd Mustafa College of Arts and Sciences Universiti Utara Malaysia, Malaysia
  • Muzafar Shah Habibullah Faculty of Economics and Management Universiti Putra Malaysia, Malaysia

DOI:

https://doi.org/10.32890/ijms2009.16.2.8

Keywords:

Economic growth, Trade openness, Fiscal policy, Government expenditure, Autoregressive Distributed Lag (ARDL)

Abstract

This study examines the impacts of trade openness and fiscal policy on economic growth in Malaysia between 1970 and 2003 using the autoregressive distributed lag (ARDL) approach and bounds test as proposed by Pesaran et al. (2001). Based on a structure consistent with the endogenous growth theory, the ARDL results show that, overall, trade openness and fiscal policy have strong positive impacts on economic growth in Malaysia over this period. This paper also develops a system instrumental variable method to estimate the structural speed of adjustment coefficient in an error correction model.

 

Downloads

Download data is not yet available.

References

Bannerjee, A., Dolado, J., & Mestre, R., (1998). Error-correction mechanism tests for co-integration in single equation framework. Journal Time Series Analysis, 19, 267-283.

Barro, R. J., (1990). Government spending in a simple model of endogenous growth. Journal of Political Economics 98, 103-125.

Barro, R.J., & Sala-I-Martin, X. (1995). Economic growth. McGraw-Hill: New York.

Bleaney, M., Gemmell, N., & Kneller, R. (2001). Testing the endogenous www.ijms.uum.edu.my growth model: Public expenditure, taxation, and growth over the long-run. Canadian Journal of Economics, 34(1), 36-57.

Caselli, F., Esquivel, G., & Lefort, F. (1996). Reopening the convergence debate: A new look at cross-country growth empirics. Journal of Economic Growth, 1, 363-389.

Cashin, P. (1995). Government spending, taxes, and economic growth. International Monetary Fund Staff Papers 42, 237-269.

Chen, P., & Gupta, R. (2006). An investigation of openness and economic growth using panel estimation. University of Pretoria, Working Paper 2006-22.

Devarajan, S., Swaroop, V., & Zou, H. (1996). The composition of public expenditure and economic growth. Journal of Monetary Economics, 37(2), 313-344.

Demetriades, P., & Law, S.H. (2006). Finance, institutions and economic development. International Journal of Finanace and Economics, 11, 1-16.

Edwards, S., (1998). Openness, productivity and growth: What do we rally know? Economic Journal, 108, 383-398.

Engen, E., & Skinner, J. (1993). Fiscal Policy and Economic Growth. Manuscript (University of Virginia, Charlottesville, VA).

Folster, S., & Henrekson, M., (2001). Growth effects of government expenditure and taxation in rich countries. European Economic Review, 45, 1501-1520.

Gerson, P. (1998). The impact of fiscal policy variables on output growth. International Monetary Fund. Working Paper 98/1.

Glomm, G., & Ravikumar, B. (1997). Productive government expenditure and long-run growth. Journal of Economic Dynamic and Control, 21, 183-204.

Ghura, D., & Hadjimichael, M.T. (1996). Growth in Sub-Saharan African. IMF Staff Paper, 43, 605-635. 194 IJMS 16 (2), 177-197 (2009)

Hansson, P., & Hendrekson, M. (1994). A new framework for testing the effect of government spending on growth and productivity. Public Choice, 31, 381-401.

Harrion, A., (1996). Openness and growth: A time-series, cross-country analysis for developing countries. Journal of Development Economic, 48, 419-449.

Hoeffler A.K. (2002). The augmented Solow Model and the African growth debate. Oxford Bulletin of Economics and Statistics, 64(2), 0305-9049.

Islam, N. (1995). Growth empirics: A panel data approach. Quarterly www.ijms.uum.edu.my Journal of Economics, 110, 1127-1170.

Jha, R., (2007). Fiscal policy in developing countries: A synoptic view. ASARC Working Paper 2007/01.

Kneller, R., Bleaney M. F., & Kneller, N. (1999). Fiscal policy and growth: Evidence from OECD Countries. Journal of Public Economics 74, 171-190.

Knight, M., Loayza, N., & Villanueva, D. (1993). Testing the neoclassical theory of economic growth, a panel data approach. International Monetary Fund Staff Paper, 40(3).

Landau, D., (1997). Government Expenditure, Human Capital Creation and Economic Growth. Journal of Public Budgeting, Accounting & Financial Management, 9(3), 467-487.

Levine, R., & Renelt, D. (1992). A sensitivity analysis of cross-country growth regressions. American Economic Review, 82, 942-63.

Lloyd, P.J. (1999). The Global Economy in PJ. Lloyd (d.), International Trade Opening and the Formation of the Global Economy, Cheltenham, the United Kingdom: Edward Elgar.

Mankiw, G., Romer, D., & Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics 107, 407-437.

Narayan, P.K., (2005). The saving and investment nexus for China: Evidence from co-integration tests. Applied Economics, 37, 1979-1990.

Pahlavani, M., Wilson E., & Worthington A.C., (2005). Trade-GDP Nexus in Iran: An application of autoregressive distributed lag (ARDL) model. American Journal of Applied Sciences, 2(7), 1158-1165.

Pesaran, M. H., Pesaran, B., (1997). Working with Microfit 4.0: Interactive econometric analysis. Oxford: Oxford University Press.

Pesaran, M. H., & Y. Shin, (1995). An autoregressive distributed lag modelling approach to co-integration analysis. DAE Working Paper No. 9514, Department of Applied Economics (Cambridge: Cambridge University). IJMS 16 (2), 177-197 (2009) 195

Pesaran, M.H., & Smith, R.J., (1998). Structural analysis of co-integration VARs. Journal of Economic Survey, 12, 471-505.

Pesaran, M. H., Shin, Y., & Smith, R.J., (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics 16(3), 289-326.

Ramirez, M.D., & Nazmi, N., (2003). Public investment and economic growth in Latin America: An empirical test. Review of Development Economics, 7(1), 115-126.

Vamvakidis, A., (1998). Regional integration and economic growth. The World Bank Economic Review, 12(2), 251-270. www.ijms.uum.edu.my _____________(2002). How robust is the growth-openness connection? Historical Evidence. Journal of Economic Growth, 7(1), 57-80.

Yanikkaya, H., (2003). Trade openness and economic growth: A cross-country empirical investigation. Journal of Development Economics, 72(1), 57-89.

Yasin, M. (2003). Public spending and economic growth: Empirical investigation of Sub-Saharan Africa. Southwestern Economic Review, 59-68. 196 IJMS 16 (2), 177-197 (2009)

Downloads

Published

28-12-2009

Issue

Vol. 16 No. 2 (2009): International Journal of Management Studies (IJMS) Vol. 16, No. 2 December 2009

Section

Articles

Research impact

Harvested 2026-09-08
0 citations recorded so far

Counts differ between services because each indexes a different body of literature. None of them is the whole picture.

Identifiers DOI 10.32890/ijms2009.16.2.8

Most read articles by the same author(s)