Public Expenditure in a Simple Model of Economic Growth: The Case of Malaysia

Wong Hong Chau

Abstract


This paper develops the public expenditure in a simple model of economic growth inMalaysia. The model investigates the relationship between the development expenditure (DE), investment (I), trade balance (TB) and Gross Domestic Product (GDP). The study used the annual data from 1970 to 2014. Simultaneous equation model, in particularly, Two-Stage Least Squares Method (TSLS) applied in this model. The result showed that investment (I) and trade balance (TB) are the most important variables determine the GDP. In determination of the level of investment (I), it appeared that GDP and trade balance (TB) are the important factors. GDP and investment (I) are the important factors determine the amount of trade balance (TB). Moreover, the results contradict to Wagner’s Law of government expenditure generally rises in tandem with income increases. It could be drawn from the results are either the size of government is driven from non-economic factors, or insufficient public expenditure is channeled toward development expenditure. Therefore, the development expenditure is merely not productive or supportive toward long term economic growth inMalaysia.

 

 


Keywords


Gross Domestic Product (GDP), Development Expenditure (DE), Investment (I), Trade Balance (TB), Simultaneous Equation Model

Full Text:

PDF

References


REFERENCE

Abdon, A., Estrada,A.G.,Lee, M., and Park, D.,( 2014). Fiscal Policy And Growth in Developing Asia.

Abizadeh, S. and Yousefi, M. (1998). An empirical analysis of South Koreas economic development and public expenditure growth, The Journal of Socio-Economics, 27(6), 687-94.

Acosta-Ormaechea, S. and Morozumi, A (2013). Can a government enhance long-run growth by changing the composition of public expenditure? IMF Working Paper 13/162. Washington, DC: International Monetary Fund.

Agénor, P.R (2010). A theory of infrastructure-led development. Journal of Economic Dynamics & Control, Vol. 34, pp. 932–950

Alfonso, A. and D. Furceri. 2010. Government Size, Composition, Volatility, and Economic Growth.European Journal of Political Economy. 26 (4). pp. 517–532.

Alshahrani, S., & Alsadiq, A. (2014). Economic Growth and Government Spending in Saudi Arabia: An Empirical Investigation. Working Paper, International Monetary Fund. http://dx.doi.org/10.5089/9781484348796.001

Andrew, M.W. (2014). Public Investment as an Engine of Growth. Working Paper, International Monetary Fund.

https://www.imf.org/external/pubs/ft/wp/2014/wp14148.pdf

Basmann, R.L. (1957). A generalized classical method of linear estimation of coefficients in a structural equation". Econometrica 25 (1): 77–83.

Baffes, J. and Shah, A (1998). Productivity of public spending, sectoral allocation choices and economic growth. Economic Development and Cultural Change. 46 (2). pp. 291–303.

Bagdigen, M. and Cetintas, H. (2003) Causality between public expenditure and economic growth: The Turkish Case, Journal of Economic and Social Research, 6(1), 53-72.

Barro, R. (1990). Government Spending in a simple model of endogenous growth. Journal of PoliticalEconomy. 98 (5). pp. S103–S125.

Bayraktar, Nihal and Moreno, D. B., (2015). How Can Public Spending Help You Grow? An Empirical Analysis for Developing Countries. Bulletin of Economic Research. 67(1), 30-64 (January).

Bergh, A. and M. Henkerson. 2011. Government Size and Growth: A Survey and Interpretation of the Evidence. Journal of Economic Surveys. 25 (5). pp. 872–897.

Bose, N., Haque, M.E., and Osborn, D.R. (2007) “Public Expenditure and Economic Growth: A Disaggregated Analysis for Developing Countries”, The Manchester School, 75, pp. 533-56.

Casasnovas, G. L., (2010). The quality of public expenditure and its influence on economic development: an empirical validation for the OECD countries 1970-2005. In: Hacienda Pública Española/Revista de Economía Pública, IEF, vol. 193(2), 9-48, June.

Cohen, J., Cohen, P., West, S. G., & Aiken, L. S. (2013). Applied multiple regression/correlation analysis for the behavioral sciences. Routledge.

Davidson, R. and MacKinnon, J. G. (1993). Estimation and Inference in Econometrics, Oxford: Oxford University Press.

Doraisami, Anita. 2011. “The Global Financial Crisis: Countercyclical Fiscal Policy Issues and Challenges in Malaysia, Indonesia, the Philippines, and Singapore.” Working Paper Series 288, Asian Development Bank Institute, Tokyo.

DeLong, J. Bradford, and Lawrence H. Summers. 2012. “Fiscal Policy in a Depressed Economy.” Paper presented to the Spring 2012 Brookings Panel on Economic Activity, Washington, DC, March

Devarajan, S., Swaroop, V. and Zou, Z., 1996. The composition of public expenditure and economic growth. Journal of Monetary Economics, Vol. 37, 313-344.

Durevall, D. and M. Henrekson. 2011. The Futile Quest for a Grand Explanation of Long-run Government Expenditure. Journal of Public Economics. 95 (7–8). pp. 708–722.

Ferris, J. N. (1998). Agricultural Prices and Commodity Market Analysis.

Frankel, Jeffrey A., Carlos A. Vegh, and Guillermo Vuletin. 2011. “On Graduation from Procyclicality.” Working Paper 17619, National Bureau of Economic Research, Cambridge, MA.

Freund, Rudolf J., William J. Wilson, and Ping Sa. Regression analysis. Academic Press, 2006.

Gemmell, N., Kneller, R., & Sanz, I. (2014). Does the Composition of Government Expenditure Matter for Long-run GDP Levels. Working Paper, Chair in Public Finance, Victoria University of Wellington, New Zealand. http://dx.doi.org/10.2139/ssrn.2484917

Glass, A. (2009). Government Expenditure on Public Order and Safety, Economic Growth and Private Investment: Empirical Evidence from the United States. International Review of Law and Economics, 29(1), 29–37. http://doi.org/10.1016/j.irle.2008.07.006

Gujarati, D.N., and Porter, D.C. (2009). Basic econometrics, 5th ed. New York: McGraw-Hill. ISBN: 978-007-127625-2

Janelle, M.,* and Peter, S. (2015). Revising Fiscal Policy and Growth in Saudi Arabia. Journal of Reviews on Global Economics, 2015 ( 4), 139-146.

Johnston, J. and DiNardo, J. E. (1997). Econometric Methods, 4th Edition, New York: McGraw-Hill, NY.

Joumard, I., M. Pisu, and D. Bloch. 2012. Tackling Income Inequality: The Role of Taxes and Transfers. OECD Journal: Economic Studies. http://dx.doi.org/10.1787/eco_studies-2012-5k95xd6l65lt

Landau, D. 1983. Government Expenditure and Economic Growth: A Cross-country Study. Southern Economic Journal. 49 (3). pp. 783–792.

Lucas, R., (1988). On the mechanics of economic development. Journal of Monetary Economics, 22 (1), 3-42.

Odhiambo, N.M. (2015). Government Expenditure and Economic Growth in South Africa: an Empirical Investigation. Atlantic Economic Journal 43(3). 393-406


Refbacks

  • There are currently no refbacks.


 

Copyright© 2015 Journal of Research in Business, Economics and Management. All rights reserved.

ISSN 2395-2210

For any help/support contact us at editorial@scitecresearch.com, jrbem@scitecresearch.com.