1. THE IMPACT OF GOVERNMENT SECTORAL EXPENDITURE ON MALAYSIA’S ECONOMIC GROWTH Presenter : AIMI AJLAA BINTI SALIMI

2. CONTENTS Introduction Literature Review Methodology Results and Discussion Conclusion

3. INTRODUCTION Malaysia’s Overview:  After independence in 1957, economic growth of Malaysia was increased due to the increased on government expenditure on health, education, communication and other public sectors.  During the financial crisis in 1997 until 1999, the current account is deficit over 6% of gross domestic product (GDP). In 2008, the crisis again occurred which impact to the Malaysian economy performed decrease on GDP growth rate of 4.6%.  In 2009 until 2012, economy of Malaysia has been recovered and expected to record positive growth rate.

4. INTRODUCTION Background of the study:  The Malaysia’s economy have impact on two types of government expenditure which includes government development expenditure and government operating expenditure.  From these two types of government expenditure has performed the total government expenditure.  The government expenditure includes security, social services, economic services and general administration. These study focuses on economic services : health and education expenditure that will impact to economic growth

5. INTRODUCTION PROBLEM STATEMENT * Government Expenditures was increased and have impact on large portion of total budget and fiscal deficit on economy * From the implication, the government can turn over financing for development expenditure by developing the effective plan * However, there are also the existing of challenges in developing the plans to ensure that there is an occurrence of the balance between short term and long term that will desire the fiscal sustainability through the changes on the government expenditure on growth of Malaysia’s economy.

6. INTRODUCTION To examine the relationship between government sectoral expenditure on economic growth To investigate the sector that gives more contribution to economic growth OBJECTIVES OF THE STUDY

7. LITERATURE REVIEW Stated : Wagner’s Law suggests that there is a long-run equilibrium relationship between government expenditure or public spending and gross domestic product (GDP). Keynesians view government expenditure as an exogenous policy instrument that influences GDP growth Landau (1983) Educational and healthcare spending gives positive impact on GDP of Malaysia Maitra (2012) Hussin et al (2012)

8. LITERATURE REVIEW A positive long-run relationship between education and economic growth in Pakistan, but in short run is not significant relation with growth Kakar et al (2011) Nigeria, the short-run relationship shows that there is negative correlation between economic growth and the spending on education The level of funding in the education sector in Nigeria has persistently fallen Omojimite (2012) Loto (2011) 1% increase in government expenditure on education per labor will lead to 0.11% increase in GDP per labor in India Tamang (2011)

9. METHODOLOGY Data The samples use in this study is time series data from year 1970 until 2012 The data had been collected from Ministry of Finance (MOF), Department of Statistic Malaysia Model Cobb-Dauglas production function, Y t = f (A, K t, L t ) The equation = Y t = β 0 + β 1 LCF t + β 2 LLF t + β 3 LGSE t Then, expand the equation into = Y t = β 0 + β 1 LCF t + β 2 LLF t + β 3 (LHE t + LEDU t ) Y t = output (GDP), CF: capital formation, LF: labor force, GSE: government sectoral expenditure, HE: health expenditure, EDU: education expenditure

10. METHODOLOGY  Steps on gathering the results: 1) Stationarity Test (Unit Root Test) by using Augmented Dickey-Fuller (ADF) test and Philips Perron (PP) test 2) Autoregressive Distributed Lags (ARDL) test: a) F-statistic test b) Long Run Cointegration c) Short Run Cointegration 3) Diagnostic Test: a) Jarque-Bera Normality test b) Lagrange Multiplier (LM) serial correlation test c) Autoregressive Conditional Heteroscedasticity (ARCH) test d) Ramsey RESET functional form tests (Error test) e) CUSUM and CUSUM-squared test

11. RESULT AND DISCUSSION To test the unit root most widely used test is Augmented Dickey-Fuller (ADF) test and Philips- Perron (PP) STATIONARITY ADF and PP test All variables are not significant at level I(0) but significant at First Difference I (1) All variables are significant at 1% except education at 5% for ADF test and 10% for PP test

12. ADF test and PP test Notes: Significant Level: *** 1% ; **5% ; *10%

13. RESULT AND DISCUSSION  ARDL cointegration test: To perform ARDL cointegration test, the model should be transformed into unrestricted error correction model (UECM) Autoregressive Distributed Lags (ARDL) test APPROACH A R D L Cointegration test

14. RESULT AND DISCUSSION F-test 4.5442 F-test > Critical Values Critical Values for ARDL Cointegration Test, Narayan (2005) Significant LevelLower BoundUpper Bound 1% 4.4286.250 5% 3.2024.544 10% 2.6603.838 Critical Values ( k = 4, n = 40) 10% Significant level APPROACH A R D L H 0 :  1 =  2 =  3 =  4 =  5 = 0 (no cointegration) H 1 :  1 ≠  2 ≠  3 ≠  4 ≠  5 ≠ 0 (cointegration) Reject the H 0

15. RESULT AND DISCUSSION APPROACH A R D L VariableCoefficientt-Value Constant-0.7044 ***-3.0275 Capital Formation0.1548 ***4.1971 Labor Force1.4854 ***4.0054 Health Expenditure0.2767 **2.3345 Education Expenditure-0.2327 *-1.8119 Long Run Cointegration Notes: Significant Level: *** 1% ; **5% ; *10%

16. RESULT AND DISCUSSION APPROACH A R D L VariableCoefficientt-Value Constant-4.2368 ***-3.9542 Capital Formation0.2610 ***6.3979 Labor Force0.8934 ***5.049 Health Expenditure0.1664 *1.9313 Education Expenditure-0.1400 *-1.9271 Short Run Cointegration (ECTt-1)-0.60146Adjustment at 60% over the period of time Notes: Significant Level: *** 1% ; **5% ; *10%

17. RESULT AND DISCUSSION DIAGNOSTIC TESTS 1) Normality test: normally distributed 2) LM test, ARCH tests and Ramsey RESET test demonstrate in the model is free from autocorrelation, heteroscedasticity and specification error problems

18. RESULT AND DISCUSSION *CUSUM and CUSUM-squared in order to test for constancy of long- run parameters Brown et al. (1975) *Result: Both stay within the critical bounds as the estimated parameters are stable over the analysis period

19. CONCLUSION There was significant relationship between government expenditure and economic growth in Malaysia Health expenditure by government gives more contribution to the economic growth rather than education expenditure which the education gives negative impact to the economic growth with the reduction by 0.2% to GDP Objectives Educational Policy should have to manage the education expenditures - to improves the weaknesses on education problems occurred that will impact to the economic growth Government should have to increase the health expenditure on healthcare spending to higher the economic growth Policy Implication

20. Presenter : AIMI AJLAA BINTI SALIMI Q&A THANK YOU