The dynamic relationship between private domestic investment, the user cost of capital, and economic growth in Malaysia

Bee Wah Tan and Chor Foon Tang

MPRA Paper from University Library of Munich, Germany

Abstract: This study attempts to examine the dynamic relationship between private domestic investment (PDI), the user cost of capital, and economic growth in Malaysia over the period of 1970 to 2009. Johansen cointegration test suggests that PDI, the user cost of capital, and economic growth are cointegrated in Malaysia. Granger causality test reveals that there is a uni-directional causality running from PDI to economic growth and also from PDI to the user cost of capital in the long run. Moreover, there is a bi-directional causal relationship between economic growth and the user cost of capital in the long run. Meanwhile, there is a strong evidence of a bi-directional causality between PDI, economic growth, and the user cost of capital in the short run. For completeness, variance decomposition is also generated and the results suggest that PDI is more important than the user cost of capital in explaining the variation of economic growth. Finally, the impulse response function confirmed that a shock in the user cost capital exerts a negative effect on PDI and economic growth in Malaysia.

Keywords: Causality; Cointegration; Economic growth; Private domestic investment (search for similar items in EconPapers)
JEL-codes: C22 E22 O16 O53 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-fdg and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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