An analysis of the causal relationships between economic development, good governance and political stability in Malaysia

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Abstract

Globally it has been accepted that good governance through effective government institutions, and political stability, have a positive impact on the economic growth and development of a country. The primary objective of this paper was to analyse the causal relationships for Malaysia, between economic development measured as GDP per capita and predicting variables including effective governance, government spending, corruption control and political stability. A quantitative econometric modelling methodology was utilized for the determination of long and short-run relationships using an ARDL model. The results indicated that no long-run existed between the variables, but in the short-run, government spending and political stability had significant impacts on economic development. Also, the results from the short-run Todo and Yamamoto causality analysis, indicated that all the predicting variables caused changes in GDP per capita, while none of the variables caused changes in effective governance. Government spending is caused by effective governance, and political stability, while corruption control, and effective governance cause political stability. The results of this study, as well as the empirical review, indicate that economic development is caused and driven by quality institutions via effective government, sustainable government spending, corruption control and political stability. Government policy should therefore keep this in mind in policy formulation.

Original languageEnglish
Pages (from-to)639-657
Number of pages19
JournalInternational Journal of Innovation, Creativity and Change
Volume5
Issue number2
Publication statusPublished - 2019
Externally publishedYes

Keywords

  • Econometric analysis
  • Economic development
  • Good governance
  • Malaysia
  • Political stability

ASJC Scopus subject areas

  • Education
  • Arts and Humanities (miscellaneous)

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