Impact of budget deficit formation on economics growth in Malaysia
The relationship between budget deficit and economic growth is one of the most importantissues debated by economists and policymakers in developed and developingcountries. The purpose of this study is to examine the relationship by concentrating ontheoretical debates, empirical studies and econometr...
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| Format: | thesis |
| Language: | eng |
| Published: |
2021
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| Subjects: | |
| Online Access: | https://ir.upsi.edu.my/detailsg.php?det=6854 |
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| Summary: | The relationship between budget deficit and economic growth is one of the most importantissues debated by economists and policymakers in developed and developingcountries. The purpose of this study is to examine the relationship by concentrating ontheoretical debates, empirical studies and econometric models to obtain substantiveconclusions. These conclusions are beneficial in the field of macroeconomics.Construction or development of macroeconomic models is used to analyze the impact of budgetdeficit on Malaysias economic growth. The effects of the budget deficit formation would leadto the formation of other macroeconomic variables, such as debt, rising interest rates and decreasing government spending, productive or non- productive. This study was conductedusing time series data collected from 1985 to 2018 to fulfil three specific objectives. The firstobjective is to identify the relationship that exists between all the selected variables and GrossDomestic Product (GDP) in the prescribed regimes. The second objective is to compare the effects ofdeficit formation on economic growth and the last objective is to investigate the dominant factoracross regime. The Auto-Regressive Distributed Lag (ARDL) model is used to analyze the co-integration and causal direction relationship between budget deficit and economicgrowth. The results show a long-term relationship of all the selected variables withGDP. This finding supported with the value of Error Correction Term (ECT) at -3.9874and significant at level 99 percent, in general model. In addition, there are differenteffects of budget deficits and dominant factor in each regime. This result supports thehypotheses set out in this study. There are existences of a long-term relationshipbetween the two variables, a deficit-GDP effect and different dominant factor in eachregime. In conclusion, the formation of a budget deficit that further forms othermacroeconomic variables in the economy is seen to have an empirical impact onMalaysia's GDP. This study is expected to contribute to the idea that, there are severaldynamic factors impacting the formation of budget deficit on GDP. Comprehensiveknowledge is a necessary in efforts to increase productivity and living standards ofpeople to ensure the stability of Malaysias economic system in future. |
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