Government Allocation and Economic Growth: An Empirical Evidence from States in Malaysia

Mohd Azrin Shameen Mohd Radzuan

doi:10.56225/ijassh.v1i1.35

Authors

Mohd Azrin Shameen Mohd Radzuan Faculty of Business, Economics and Social Development, Universiti Malaysia Terengganu, Malaysia

DOI:

https://doi.org/10.56225/ijassh.v1i1.35

Keywords:

Gross-Domestic Product (GDP), allocation, causal relationship, economic growth, government spending

Abstract

Academic researchers are still interested in government fiscal management and its economic consequences. The impact of federal government fiscal policy on the economy has gotten a lot of attention. Nonetheless, little is known about state-level fiscal management. The main goal of this research is to investigate the relationship between state government fiscal and economic growth across Malaysia's states. We also investigate the economic impact of the federal government's contribution on each state's budget allocation. We identified disparities in federal funding. We use a panel dataset that spans 13 Malaysian states and ten years, from 2008 to 2017. We found that government spending drives growth in domestic products for most state governments using the panel autoregressive distributed lag (ARDL) model. The Granger causality test reveals that state government spending and federal allocation to states significantly impact Malaysian state economic growth. In general, our empirical evidence backs up Wagner's theory.

References

Ahsan, S. M., Kwan, A. C. C., & Sahni, B. S. (1992). Public expenditure and national income causality: further evidence on the role of omitted variables. Southern Economic Journal, 623–634.

Ansari, M. I. (2002). Impact of financial development, money, and public spending on Malaysian national income: an econometric study. Journal of Asian Economics, 13(1), 72–93.

Aschauer, D. A. (1989). Is public expenditure productive? Journal of Monetary Economics, 23(2), 177–200.

Asri, N. M., Karim, Z. A., Ahmad, F., & Ramli, R. (2015). Pengurusan Fiskal Kerajaan Negeri di Semenanjung Malaysia: Analisis Autoregressive Distributed Lag (ARDL). Jurnal Ekonomi Malaysia, 49(2), 97–120.

Blanchard, O., & Perotti, R. (2002). An empirical characterization of the dynamic effects of changes in government spending and taxes on output. The Quarterly Journal of Economics, 117(4), 1329–1368.

Chamorro-Narvaez, R., & Garavito-Calderon, N. (2019). Foreign Direct Investment and Economic Growth in Developed and Developing Countries. Global Conference on Business and Economics: Volume 2, 18.

Cowton, C. J. (1998). The use of secondary data in business ethics research. Journal of Business Ethics, 17(4), 423–434.

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

Iskandar, A., Possumah, B. T., & Aqbar, K. (2020). Islamic financial development, economic growth and CO2 emissions in Indonesia. Journal of Islamic Monetary Economics and Finance, 6(2), 353–372.

Kogid, M., Mulok, D., Beatrice, L. F. Y., & Mansur, K. (2010). Determinant factors of economic growth in Malaysia: Multivariate cointegration and causality analysis. European Journal of Economics, Finance and Administrative Sciences, 24(24), 123–137.

Mehmood, R., & Sadiq, S. (2010). The relationship between government expenditure and poverty: A cointegration analysis. Romanian Journal of Fiscal Policy (RJFP), 1(1), 29–37.

Pinto, P. M. (2013). Partisan investment in the global economy: Why the left loves foreign direct investment and FDI loves the left. Cambridge University Press.

Taha, R., & Loganathan, N. (2008). Causality between tax revenue and government spending in Malaysia. The International Journal of Business and Finance Research, 2(2), 63–73.

Wah, L. Y. (1997). Employment effects of output and technological progress in Malaysian manufacturing. The Journal of Development Studies, 33(3), 411–420.