THE EFFECT OF INFLATION RATE, INTEREST RATE AND UNEMPLOYMENT RATE ON THE ECONOMIC GROWTH OF MALAYSIA
DOI:
https://doi.org/10.51200/mjbe.vi.3322Keywords:
economic growth, inflation rate, interest rate, unemployment rate, ARDL, Toda-Yamamoto causality testAbstract
This study examines the effect of selected macroeconomics variables including inflation rate, interest rate and unemployment rate on the economic growth of Malaysia for the period of 2010 to 2018. To identify the effect of inflation, real interest rate, and unemployment on the gross domestic product (GDP), the long-run and short-run relationships between these variables are estimated. The Autoregressive Distributed Lag (ARDL) method is used for cointegration analysis. In the long run, the inflation rate has a positive impact on economic growth, meanwhile, the interest rate has a negative impact on economic growth. There is no evidence of a long-run relationship between the unemployment rate and economic growth. Based on the Toda-Yamamoto causality test, there is a uni-directional causal relationship from economic growth to the unemployment rate.
References
Babalola, O. O., Danladi, J. D., Akomolafe, K. J., & Ajiboye, O. P. (2015). Inflation, interest rates and economic growth in Nigeria. European Journal of Business and Management, 7 (30), 91 – 102.
Baglan, D., & Yoldas, E. (2014). Non-linearity in the inflation-growth relationship in developing economies: Evidence from a semiparametric panel model. Economic Letters, 125, 93 – 96.
Bhat, S. A., & Laskar, M. R. (2016). Interest Rate, Inflation Rate and Gross Domestic Product of India. International Journal of Technical Research & Science, 1 (9), 284 – 288.
Bittencourt, M. (2012). Inflation and economic growth in Latin America: Some panel time series evidence. Economic Modelling, 29, 333 – 340.
Bosworth, B. P. (2014). Interest rates and economic growth: Are they related? Centre for Retirement Research of Boston College, 1 – 26.
Christopoulos, D. K. (2003). The relationship between output and unemployment: Evidence from Greek regions. Papers in
Regional Science, 611 – 620.
Datta, K., & Mukhopadhyay, C. K. (2011). Relationship between inflation and economic growth in Malaysia – An econometric review. International Conference on Economics and Finance Research IPEDR, 4, 415 – 419.
Dogru, B. (2013). The link between unemployment rate and real output in Eurozone: A panel error correction approach. Procedia – Social and Behavioral Sciences, 99, 94 – 103.
Dritsakis, N., & Stamatiou, P. (2016). The effects of unemployment of economic growth in Greece: An ARDL bound test approach. The Romanian Economic Journal, 19 (62), 53 – 72.
Elshamy, H. (2013). The relationship between unemployment and output in Egypt. Procedia- Social and Behavioral Sciences, 81, 22 – 26.
Furhmann, R. (2020, April 21). Okun’s Law: Economic growth and unemployment. Investopedia. https://www.investopedia.com/articles/economics/12/okuns-law.asp
Gokal, V., & Hanif, S. (2004). Relationship between inflation and economic growth. Working Paper 2004/04 Economics Department Reserve Bank of Fiji, 1 – 51.
Jelilov, G. (2016). The impact of interest rate on economic growth example of Nigeria. African Journal of Social Sciences, 6 (2), 51 – 64.
Jordaan, J. C. (2013). Impact of interest rate changes on South African GDP and households: A combined macroeconomic and social accounting matrix modelling approach. Southern African Business Review, 17(3), 156 – 186.
Kasidi, F., & Mwakanemela, K. (2013). Impact of inflation on economic growth: A case study of Tanzania. Asian Journal of Empirical Research, 3 (4), 363 – 380.
Kuso, Y., & Gachunga, M. J. (2019). An analytical study of the impact of unemployment on economic growth in Kenya. International Journal of Business Marketing and Management (IJBMM), 4 (4), 52 – 57.
Lopez, V. A., & Mignon, V. (2011). On the impact of inflation on output growth: Does the of inflation matter. Journal of Macroeconomics, 33, 455 – 464.
Maiga, F. K. (2017). Impact of interest rate on economic growth in Nigeria. Pyrex Journal of Business and Finance Management Research, 3 (3), 98 – 111.
Makaringe, S. C., & Khobai, H. (2018). The effect of unemployment on economic growth in South Africa (1994-2016). MPRA Paper No. 85305, 1-15.
Mushtaq, S. & Siddiqui, D. A. (2017). Effect of interest rate on bank deposits: Evidence from Islamic and non-Islamic countries. Future Business Journal, 3 (1,) 1 – 8.
Pal, R. (2018, February). Chapter 5: economic growth, inflation and unemployment. https://www.researchgate.net/publication/323383852_Economic_Growth_In f l ation_and_Unemployment
Qamruzzaman M., & Wei, J. (2018). Financial innovation, stock market development, and economic growth: An application of ARDL model. International Journal of Financial Studies, 6 (3), 1 – 30.
Sadiku, M., Ibraimi, A., & Sadiku, L. (2015). Econometric estimation of the relationship between unemployment rate and economic growth of FYR of Macedonia. Procedia Economics and Finance, 19, 69 – 81.
Schubert, S. F., & Turnovsky, S. J. (2018). Growth and unemployment: Short-run and long-run tradeoffs. Journal of Economic Dynamics & Control, 91, 172 – 189.
Seleteng, M., Bittencourt, M., & Eyden, R. V. (2013). Non-linearities in inflation-growth nexus in the SADC region: A panel smooth transition regression approach. Economic Modelling, 30, 149 – 156.
Semuel, H., & Nurina, S. (2015). Analysis of the effect of inflation, interest rates, and exchange rates on gross domestic product (GDP) in Indonesia. Proceedings of the International Conference on Global Business, Economics, Finance and Social Science (GB15_Thai Conference), 1 – 13.
Singh, K., & Kalirajan, K. (2003). The inflation-growth nexus in India: An empirical analysis. Journal of Policy Modeling, 25, 377 – 396.
Udoka, C. O., & Anyingang, R. A. (2012). The Effect of Interest Rate Fluctuation on the Economic Growth of Nigeria, 1970-2010. International Journal of Business and Social Science, 3 (20), 295 – 302.
Vinayagathasan, T. (2013). Inflation and economic growth: a dynamic panel threshold analysis for Asian economies. Journal of Asian Economics, 26, 31 – 41.
Zaleha, M. N., Norashidah, M. N., & Judhiana, A. G. (2007). The relationship between output and unemployment in Malaysia: Does Okun’s law exist? International Journal of Economics and Management, 1 (3), 337 – 344.
Downloads
Published
How to Cite
Issue
Section
Total Views: 2959
| 
Total Downloads: 7679
