The causality relationship between public debt, economic growth and export in Malaysia

Abstract

This paper investigates the nexus between economic growth, export and public debt in Malaysia. The analysis was conducted using the VECM framework and the Granger Causality test over the period of 1970–2013 in order to explore the existence of causality relationship between these variables. The findings from the analysis show the existence of long run bi-directional relationship between public debt and exports of Malaysia. The causality tests statistics do not support the existence of short run causality relationship from public debt to GDP, or vice versa. The test results also fail to support the existence of short run causal relationship between exports and public debt. However, this study found evidence to support the existence of uni-directional short run causal relationship from exports to public debt in Malaysia. In conclusion, the government debt may not influence Malaysia’s economic growth in the short run, but it could affect the exports in the long run and subsequently the sustainability of the economy.