African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4150

Full Length Research Paper

Does debts foster economic growth? The experience of Malaysia

  Chee-Keong Choong1*, Evan Lau2, Venus Khim-Sen Liew2 and Chin-Hong Puah2    
  1Centre for Economic Studies, Faculty of Business and Finance, University Tunku Abdul Rahman (Perak Campus), Jalan University, Bandar Barat, 31900 Kampar, Perak, Malaysia. 2Department of Economics, Faculty of Economics and Business, University Malaysia Sarawak, 94300 Kota Samarahan, Sarawak, Malaysia.
Email: [email protected]

  •  Accepted: 14 June 2010
  •  Published: 31 July 2010

Abstract

 

The study examines the effect of different types of debts on the economic growth in Malaysia during the sample period 1970 - 2006. Using cointegration test, the findings suggest that all components of debts have a negative effect on long-run economic growth. In addition, the Granger causality test reveals the existence of a short-run causality linkage between all debt measures and economic growth in the short-run. The policy conclusion is that an increase in foreign debt level adversely influences economic performance, whereas the decline in the rate of economic growth weakens the ability of the country to service its debt.

 

Key words: Debts, economic growth, debt overhang, cointegration, causality.