A reexamination of the role of exports in Malaysia's economic growth: after Asian financial crisis, 1970-2000


There has been intense debate between outward-oriented and inward-oriented trade strategies to foster industrialisation and hence economic growth. This has prompted considerable number of studies on the export-led growth (ELG)hypothesis. However, most studies examining the export-led growth (ELG) hypothesis either in developing or developed countries produced mixed results,or in some cases, contradictory results. Thus, the purpose of this study is to re-examine the ELG hypothesis in Malaysia, affer the 1997 Asian financia1 crisis using a 6 variable model by considering the relationship between real Gross Domestic Product (GDP) and real exports, with real imports, real effective exchange rate, real gross fixed capital formation and real GDP of the United States (U.S.) to exert their injuence. This study covers quarterly data from 1970 to 2000 to see any impact of the 1997 financial crisis on Malaysia's economic growth and export linkage. Using the Augmented Dickey Fuller unit root test, the underlying series are tested as non-stationary in levels but stationary in first differences. Using the recent time series econometrics technique of Johansen-Juselius (1990) Multivariate Cointegration Test and Vector Error Correction Model (VECM), this analysis found that the ELG hypothesis is only a short term phenomenon. The results reported strong empirical evidence to support bi-directional growth between exports and output, and a positive short term relationship between them. However, in the long-run, the positive impact of exports on economic growth tends to diminish, shown by the insignificant coefficient of the error correction term. Support was also found for the internally-generated growth hypothesis from the export equation. No structural breaks were reported in the Chow Test. This means that the 1997 Asian financial crisis did not cause any major 'disturbances' in our economy

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