Economic Sectors and Growth: Cointegration and Causality Analysis for Malaysia

The primary, secondary and tertiary sectors are important elements in any country's economy due to their crucial inputs for the rest of the economy, thus having a significant effect on the investment of a country. This paper empirically examines the main determinant of Malaysian economic sectors contribution toward GOP growth. It uses annual data from the year 1990 until 2010. The research methodology incorporates from time series data gathered from Malaysia Economic Statistics 2013 published by Department of Statistics, Malaysia. The data was analysed using cointegration and causality analysis. From the Augmented Dickey-Fuller (AOF) and Phillips-Perron (PP) tests, it is found result that the series GOP growth, primary, secondary and tertiary sectors are non-stationary in levels and stationary in first differences. The results indicated that all variables are integrated of order one, that is 1(1), and this satisfies the condition that all variables must have the same order of integration to be cointegrated. The Trace statistic test has detected one cointegrating relationship at 5% significant level. It is suggested that, these four variables are bound together by long run equilibrium relationships and follow a common long run path. It is found that LnSS granger cause the GR unidirectional at 5% significant level. Besides, it the unidirectional causality from LnTS to GR does exist at 10% significant level. The result indicated that tertiary sector has been the main determinant of Malaysian GOP throughout the year analysed.