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Public debt sustainability and economic growth in Malaysia: Threshold and causality analysis

Author

Listed:
  • Qaiser Munir

    () (Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah)

  • Sook Ching Kok

    () (Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah)

  • Winnie Abdulnasir

    () (Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah)

Abstract

The 2008 financial crisis has led to an unprecedented increase in public debt across the world, raising serious concerns about its economic impact. This paper investigates the impact of public debt on long-run GDP growth in Malaysia from the year 1970 to 2013. We employ novel methods and diagnostics from the time-series literature, such as threshold regression approach suggested by Hansen (2000), causality test and cointegration test. The empirical results suggest an inverse relationship between debt and GDP growth, controlling for other determinants of growth. Further, our results suggest that there is strong evidence of causality from growth to public debt. In addition, threshold effect and nonlinearity between debt-growth is examined. We found a non-linear impact of public debt on GDP growth with a turning point?beyond which the public debt-to-GDP ratio has a deleterious impact on long-term growth?at about 50-60% of GDP.

Suggested Citation

  • Qaiser Munir & Sook Ching Kok & Winnie Abdulnasir, 2016. "Public debt sustainability and economic growth in Malaysia: Threshold and causality analysis," Proceedings of International Academic Conferences 5306868, International Institute of Social and Economic Sciences.
  • Handle: RePEc:sek:iacpro:5306868
    as

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    File URL: https://iises.net/proceedings/27th-international-academic-conference-prague/table-of-content/detail?cid=53&iid=031&rid=6868
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Public debt; Economic growth; fiscal policy; Threshold analysis; Causality;

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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