Government expenditure and money supply in relationship with the economic growth: study on Malaysia

This research aims to examine the relationship between the government expenditure and money supply (M2) with the economic growth in Malaysia. The Granger Causality Test and OLS method to examine the relationship between dependent variable (Economic Growth) with the independent variables (Government Expenditure and M2).The annual data consists of the Economic Growth (change in Real GDP), the money supply by broad definition (M2), and the government expenditure covering the previous 26 years from 1984 to 2009 is analyze in this research. The result for Malaysia shows that the causation does not exist between the independent variables (Federal Government Expenditure and M2) and the dependent variable (economic growth). Further estimation result shows that only M2 has a significant positive relationship with the economic growth.