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The Causal Relationship between Health and Education Expenditures in Malaysia


  • Chor Foon TANG

    (University of Malaya, Malaysia)

  • Yew Wah LAI

    (University Sains, Malaysia)


A major macroeconomic policy in generating economic growth is to encourage investments on human capital such as health and education. This is because both health and education make significant contribution to increasing productivity of the labour force which ultimately exerts a positive effect on raising output levels. A question that arises is whether investments on health and education have a causal relationship and if so, what is the directional causality? The objective of this study is to examine the causal relationship between health and education expenditures in Malaysia. This study covered annual data from 1970 to 2007. Using Granger causality as well as Toda and Yamamoto MWALD causality approaches, this study suggests that education Granger-causes health expenditure in both the short run and long run. The findings of this study implied that the Malaysian society places preference on education expenditure rather than health. This preference is not unexpected as generally, an educated and knowledgeable society precedes a healthy one. Before a society has attained a relatively higher level of education, it is less aware of the importance of health. Thus, expenditure on education should lead expenditure on health.

Suggested Citation

  • Chor Foon TANG & Yew Wah LAI, 2011. "The Causal Relationship between Health and Education Expenditures in Malaysia," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(8(561)), pages 61-74, August.
  • Handle: RePEc:agr:journl:v:8(561):y:2011:i:8(561):p:61-74

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    References listed on IDEAS

    1. Elena Arnal & Alexander Hijzen, 2008. "The Impact of Foreign Direct Investment on Wages and Working Conditions," OECD Social, Employment and Migration Working Papers 68, OECD Publishing.
    2. Larisa APARASCHIVEI & Maria Denisa VASILESCU & Nicolae CĂTĂNICIU, 2011. "The Impact of Investments and Gross Value Added upon Earnings," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(555)), pages 207-218, February.
    3. David M. Drukker, 2003. "Testing for serial correlation in linear panel-data models," Stata Journal, StataCorp LP, vol. 3(2), pages 168-177, June.
    4. David G. Blanchflower & Andrew J. Oswald, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-167, Summer.
    5. Nigel Driffield & Sourafel Girma, 2003. "Regional Foreign Direct Investment and Wage Spillovers: Plant Level Evidence from the UK Electronics Industry," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(4), pages 453-474, September.
    6. Christopher F Baum, 2001. "Residual diagnostics for cross-section time series regression models," Stata Journal, StataCorp LP, vol. 1(1), pages 101-104, November.
    7. Zhao, Laixun, 1998. "The Impact of Foreign Direct Investment on Wages and Employment," Oxford Economic Papers, Oxford University Press, vol. 50(2), pages 284-301, April.
    8. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
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    More about this item


    causality; education; health; Malaysia; MWALD.;


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