Internal and external macroeconomic determinants on Malaysia’s economic growth in short run and long run effect

Economic growth is one of the main objectives for all countries, and identifying the key drivers that influence it is essential. For developing countries such as Malaysia, sustaining high and stable economic growth is crucial to achieving developed country status. Since gaining independence in 1957, Malaysia has introduced numerous national development plans and long-term visions, including the New Economic Policy (NEP), Vision 2020, and most recently the Shared Prosperity Vision 2030. These plans were designed to transform the country’s economic structure, reduce poverty, and improve its ability to compete globally. However, the country still has not fully reached the standards of income, technology, and social well-being that define a developed nation. This situation highlights the importance of understanding the key economic factors that can sustain steady and strong growth in short term and long term, so that past efforts can lead to lasting success. Accordingly, this study investigates the relationship between Malaysia’s Gross Domestic Product (GDP), a primary indicator of economic performance, and four selected macroeconomic variables: consumer spending (CS), consumer price index (CPI), imports (IM), and exports (EX) of goods and services. Annual time series data from 1961 to 2022 obtained from Eikon DataStream (UiTM) and the World Bank Database are used, and the Autoregressive Distributed Lag (ARDL) model is applied to examine both short-run and long-run effects. The model’s validity is confirmed through unit root tests, bounds cointegration testing, and a series of diagnostic and stability tests, including CUSUM and CUSUMSQ. The results show that consumer spending and imports have a significant and positive impact on GDP in both the short and long run. Exports have a positive impact on GDP only in the short run, while CPI does not show a significant impact in either period. Additionally, Granger causality was employed to examine the causality between the variables. Tests reveal a unidirectional causal relationship from GDP to exports and from consumer spending to exports, suggesting no significant causal links among the other variables. These results emphasize the importance of consumer spending (CS), imports (IM), and exports (EX) of goods and services in shaping Malaysia’s economic growth. The study concludes with policy recommendations and encourages future research using multi-country data or more advanced methodologies to gain deeper insights into macroeconomic performance in developing economies.