The nexus between debt and economic growth in Malaysia: causality and threshold analysis
This study assess empirically the non-linear relationship and assess the long-run and short-run links together with causality direction between debt and economic growth, both external debt and public debt using annual data from 1970-2013. The econometric methodologies employed are a batteries unit r...
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| Format: | Thesis |
| Language: | English English |
| Published: |
2016
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| Online Access: | https://eprints.ums.edu.my/id/eprint/42579/1/24%20PAGES.pdf https://eprints.ums.edu.my/id/eprint/42579/2/FULLTEXT.pdf |
| Summary: | This study assess empirically the non-linear relationship and assess the long-run and short-run links together with causality direction between debt and economic growth, both external debt and public debt using annual data from 1970-2013. The econometric methodologies employed are a batteries unit root tests and cointegration tests both with and without structural breaks, and causality test by Granger (1969) and Toda-Yamamoto (1995), and Hansen (2000) to address the threshold level. First, unit root test results confirm the stationarity of the variables at first difference. Secondly, according to cointegration analysis, this study validates the existence of long-run and short-run between the debts variable and the economic growth throughout the studied period. In the causality analysis, this study confirms the unidirectional causality that runs from economic growth to both external and public debt and not vice versa, suggesting the decline in growth leads to accumulation of debts, since the decline in economic growth in Malaysia is external shock-driven. On the threshold analysis, the result indicates a statistically significant non-linear impact of public debt-to-GDP on economic growth of Malaysia. The threshold level for public debt-to-GDP is found to be 52.66%, turning point where public debt starts to impair economic growth, while 54.68% for external debt-to-GDP. In general, the study may contribute to a new insight on the indebtedness and sustainable level of debt in Malaysia, both external and public debt as it suggests an optimal level of debt in which debt starts to impair economic growth. |
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