Causality between trade openness and economic growth : Evidences from Malaysia / Fatien Nurdyana Aziera Mohamad

International trade can be describe as the exchange of good and services across countries and
its include all cross border activities (Kumar,2009), and it consist of export, import and
foreign direct investment. This trade happen due to differences in nation business nature.
There are no countries that can maximize their production due to distinction in natural
resources, human capital, financial and technology level in each country. Hence, countries
will participate in international trade by export the excess goods and services to another
countries, and import goods and services that not produce in the countries (Adedeji, 2006).
This study focus on the causality between trade openness and economic growth in Malaysia.
For the trade openness, the variable choose by researcher are exchange rate, export, import
and FDI. Meanwhile, the dependant variable is Malaysia economic growth. The scope of this
study ranges from 1988-2017. The method used in regressing the data include normality test,
Unit root test ( ADF and PP test), optimal lag order, Johansen Cointergration test, Vector
Error Corection, Granger causality test and Lagrange Multiplier test. From the result in data
analysis, we can see that the only significant variable is exchange rate. However, it has
negative relationship with GDP whereby increase in exchange rate will lead to decrease in
GDP. Therefore, researcher recommends that the government should take an action to
stabilize the exchange rate in order to prevent it to fluctuate too frequently. This
recommendation is in line with Thapa (2002) suggestion.