The effect of macroeconomic factors on economic growth in Malaysia / Nurul Shafika Mahmud

This paper studies the effect of macroeconomic factors on economic growth in Malaysia. Macroeconomic factors include exchange rate (ER), trade openness (TO) and foreign direct investment (FDI) that act as independent variables while economy growth is a dependent variable. Economy growth in Malaysia seems to be fluctuating over times which create a problem to the country in order to know what the effect that has been influence. Even though, there are still many factors that give impact to the economic performance, but these three variable also able to explain as it is relatable in the Gross Domestic Product (GDP) component: consumption, investment, government spending, export and import. {C + I + G + (X-M)}.
Study on the effect of exchange rate, trade openness and foreign direct investment on economic growth in Malaysia is conducted using time series data for 31 years in 1988 to 2018. Data is collected through The World Bank as it is accurate source. A unit root test involves Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) and Ordinary Least Square (OLS) is used to estimate the unknown parameters in a linear regression model and end with diagnostic checking. Results shows that only two variables are significant, exchange rate and trade openness where the probability is below than 5%.