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Export-led Growth Hypothesis in Malaysia: An Application of Two- Stage Least Square Technique

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Author Info

  • Choong Chee Keong

    (Universiti Tunku Abdul Rahman Malaysia)

  • Zulkornain Yusop

    (Universiti Putra Malaysia)

  • Venus Khim-Sen Liew

    (Universiti Putra Malaysia)

Abstract

This paper aims to re-estimate the robustness of the relationship between export and economic growth in the Malaysian economy from 1959 to 2000. Combining both production function and international trade and development theories, a six variable (economic growth, exports, imports of consumption goods, capital formation, labour force and exchange rate) vector autoregression (VAR) model has been developed. Multivariate cointegration results revealed that there exists a single cointegrating vector in the estimated system. This means that these variables are linked together in achieving their steady state equilibrium in the long run. Resulting from the endogeneity problem of the variables involved, two-stage least squares was applied to estimate the short run causality model. From our error correction model, we reported that all variables, except exchange rate Granger-cause economic growth in the short run at 5 percent significance level. This implies that export-led hypothesis growth is valid in the Malaysian economy in both short- and long-run. Besides, our results suggest that the growth rate of capital formation and imports have positive impacts on economic growth, while labour has a negative impact in the short-term.

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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0308002.

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Date of creation: 03 Aug 2003
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Handle: RePEc:wpa:wuwpif:0308002

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Related research

Keywords: Export-led growth hypothesis; endogeneity; multivariate cointegration test; two-stage least square; Granger-causality; production function theory.;

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  1. Thornton, John, 1997. "Exports and economic growth: Evidence from 19th Century Europe1," Economics Letters, Elsevier, vol. 55(2), pages 235-240, August.
  2. Kavoussi, Rostam M., 1984. "Export expansion and economic growth : Further empirical evidence," Journal of Development Economics, Elsevier, vol. 14(1), pages 241-250.
  3. Fosu, Augustin Kwasi, 1990. "Exports and economic growth: The African case," World Development, Elsevier, vol. 18(6), pages 831-835, June.
  4. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  5. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  6. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  7. Jordan Shan & Fiona Sun, 1998. "On the export-led growth hypothesis: the econometric evidence from China," Applied Economics, Taylor & Francis Journals, vol. 30(8), pages 1055-1065.
  8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  9. Raymond Riezman & Charles Whiteman & Peter M. Summers, 1996. "The Engine of Growth or Its Handmaiden? A Time-Series Assessment of Export-Led Growth," GE, Growth, Math methods 9602002, EconWPA.
  10. Lancaster, Kelvin, 1980. "Intra-industry trade under perfect monopolistic competition," Journal of International Economics, Elsevier, vol. 10(2), pages 151-175, May.
  11. A. F. Darrat & M. K. Hsu & M. Zhong, 2000. "Testing export exogeneity in Taiwan: further evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 7(9), pages 563-567.
  12. Augustin Kwasi Fosu, 1996. "Primary Exports and Economic Growth in Developing Countries," The World Economy, Wiley Blackwell, vol. 19(4), pages 465-475, 07.
  13. Reinhardt, Nola, 2000. "Back to Basics in Malaysia and Thailand: The Role of Resource-Based Exports in Their Export-Led Growth," World Development, Elsevier, vol. 28(1), pages 57-77, January.
  14. Serletis, Apostolos, 1992. "Export growth and Canadian economic development," Journal of Development Economics, Elsevier, vol. 38(1), pages 133-145, January.
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