Government expenditure and economic growth in Malaysia - Aggregate and disaggregate perspectives

Pang, En Qi and Tam, Ye Xuan (2025) Government expenditure and economic growth in Malaysia - Aggregate and disaggregate perspectives. Final Year Project, UTAR.

Preview

PDF Download (3505Kb) | Preview

Abstract

This study investigates the relationship between government development expenditure and economic growth in Malaysia from 1990 to 2023, using both aggregate and disaggregate perspectives. A step-by-step econometric approach is adopted, beginning with the analysis of total development expenditure, followed by aggregate social sector spending, and finally the disaggregated components: education and training, health, and housing. This layered model progression allows for a more detailed understanding of how different types of government spending influence real GDP. Time series econometric methods, including the Johansen Cointegration Test and the Vector Error Correction Model (VECM), are employed to estimate both shortrun and long-run relationships. In Model 1, aggregate development expenditure is found to have a significant and positive long-run effect on economic growth, though its short-run effect is statistically insignificant. In Model 2, social sector expenditure demonstrates a negative significant long-run relationship with GDP, but short-run effects remain weak. In Model 3, which disaggregates the social sector, it found that health and housing expenditures have positive and significant long-run effects, whereas education and training shows a negative and significant impact in the long run. However, in the short run, education shows a delayed positive impact. The short-run effects of health and housing are negative effects but some lag periods showing statistical significance and others remain insignificant. These variations are possibly due to policy inefficiencies or delayed returns. Keywords: government expenditure; economic growth; social sector expenditure; Johansen Cointegration test; VECM; Malaysia Subject Area: HJ7461-7980 Expenditures. Government spending

Actions (login required)