EXPORT-LED GROWTH HYPOTHESIS IN MALAYSIA: AN
Sunway Academic Journal 2, 13–22 (2005)
EXPORT-LED GROWTH HYPOTHESIS IN MALAYSIA: AN
INVESTIGATION USING BOUNDS TEST
CHOONG CHEE KEONGa
Universiti Tunku Abdul Rahman
ZULKORNAIN YUSOP
Universiti Putra Malaysia
VENUS LIEW KHIM SEN
Universiti Malaysia Sabah
ABSTRACT
The objective of this paper is to test the validity of the export-led growth hypothesis in the Malaysian economy using a more comprehensive sample period and a recent technique, that is, the bounds testing approach. Based on this model, both exports and labour force have stimulated positive adjustment to economic growth, whereas variables such as imports, exchange rate and the East Asian financial crisis are found to influence growth negatively. Moreover, a cointegrated relationship between exports and economic growth was detected in both the long and short runs. Further analysis showed that exports Granger-cause economic growth in the period of study.
Thus, this study provides further evidence to support the export-led growth hypothesis in the Malaysian economy. Key words: Export-led growth, bounds test, causality.
INTRODUCTION
In 1817, David Ricardo proposed that trade enables a country to specialize in the production of a commodity in which it has a comparative advantage. The specialization of production can increase the efficiency of resource utilization by increasing the rate of capital formation and improving the growth rate of total factor productivity (Khalafalla and Webb, 2001).
Since the mid-1980s, the Malaysian economy has been growing rapidly and it has been suggested that such growth is driven by exports (Reinhardt, 2000). However, empirical evidence provides no clear conclusion in this regard (Shah and Yusoff, 1990; Doraisami,
1996; Dodaro, 1993; Ghatak and Price, 1997; Al-Yousif, 1999; Khalafalla and Webb,
2001). Shah and Yusoff (1990) conducted one of the earliest studies on annual data of the
Malaysian economy up to 1987 by using the Ordinary Least Squares
EXPORT-LED GROWTH HYPOTHESIS IN MALAYSIA: AN
INVESTIGATION USING BOUNDS TEST
CHOONG CHEE KEONGa
Universiti Tunku Abdul Rahman
ZULKORNAIN YUSOP
Universiti Putra Malaysia
VENUS LIEW KHIM SEN
Universiti Malaysia Sabah
ABSTRACT
The objective of this paper is to test the validity of the export-led growth hypothesis in the Malaysian economy using a more comprehensive sample period and a recent technique, that is, the bounds testing approach. Based on this model, both exports and labour force have stimulated positive adjustment to economic growth, whereas variables such as imports, exchange rate and the East Asian financial crisis are found to influence growth negatively. Moreover, a cointegrated relationship between exports and economic growth was detected in both the long and short runs. Further analysis showed that exports Granger-cause economic growth in the period of study.
Thus, this study provides further evidence to support the export-led growth hypothesis in the Malaysian economy. Key words: Export-led growth, bounds test, causality.
INTRODUCTION
In 1817, David Ricardo proposed that trade enables a country to specialize in the production of a commodity in which it has a comparative advantage. The specialization of production can increase the efficiency of resource utilization by increasing the rate of capital formation and improving the growth rate of total factor productivity (Khalafalla and Webb, 2001).
Since the mid-1980s, the Malaysian economy has been growing rapidly and it has been suggested that such growth is driven by exports (Reinhardt, 2000). However, empirical evidence provides no clear conclusion in this regard (Shah and Yusoff, 1990; Doraisami,
1996; Dodaro, 1993; Ghatak and Price, 1997; Al-Yousif, 1999; Khalafalla and Webb,
2001). Shah and Yusoff (1990) conducted one of the earliest studies on annual data of the
Malaysian economy up to 1987 by using the Ordinary Least Squares
References: Al-Yousif, Y. K. (1999). On the role of exports in the economic growth of Malaysia: A multivariate analysis Bardsen, G. (1989). Estimation of long-run coefficients in error-correction models. Oxford Bulletin of Economics and Statistics, 51, 345–350. Dodaro, S. (1993). Exports and growth: A reconsideration of causality. Journal of Developing Areas, 27, 227–244. Doraisami, A. (1996). Export growth and economic growth: A reexamination of some time series evidence of Malaysian experience Ghatak, S., & Price, S. W. (1997). Export composition and economic growth: Cointegration and causality evidence for India Gujarati, D. N. (1995). Basic Econometrics, 3rd ed., New York: McGraw-Hill. Khalafalla, K. Y., & Webb, A. J. (2001). Export-led growth and structural change: Evidence from Malaysia Pesaran, H. M., Shin, Y., Smith, R. J. (2001). Bounds testing approaches to the analysis of long-run relationships Reinhardt, N. (2000). Back to basics in Malaysia and Thailand: The role of resource-based exports in their export-led growth Shah, M., & Yusoff, M. B. (1990). Export and economic growth: A case of Malaysia in Trade and Development in Malaysia (Ed.) Mohammed B Tang, T. C. (2001). Bank lending and inflation in Malaysia: Assessment from unrestricted error correction models Tang, T. C. (2002). Demand for M3 and expenditure components in Malaysia: Assessment from bounds testing approach