Reinvestigating the Export-Led Growth Evidence in Malaysia: Bound Test Approach

Abstract

International trade is an important contributor to Malaysia's economic growth and development. Malaysia's trade policy is to pursue efforts towards creating a more liberalizing and fair global trading environment. While Malaysia continues to accord high priority to the rule-based multilateral trading system under the World Trade Organisation (WTO), Malaysia is also pursuing regional and bilateral trading arrangements to complement the multilateral approach to trade liberalisation. Recently, Malaysia has successfuly established free trade agreement (FTA) with her close trading partner such as Japan, Pakistan, New Zealand, India, Chile and Australia. Knowing the importances of export contribution towards the gross domestic product (GDP) of the country, this paper aims to reinvestigates the evidence of Export-Led-Growth Hypothesis by using recent time series techniques known as Bound test. The data used in this paper is annually data ranged from 1980 to 2011. By modifying the standard Cobb-Douglas production function, we found out that export plays a significant role in contributing growth to the Malaysia’s economy. Besides, labor and capital are also vital for the development of the nation. We recommend few policies based on the result gained from this paper.