Real effects of government debt on sustainable economic growth in Malaysia

Abstract

The persistent increase of government debt in Malaysia in the recent years has raised con-cerns as to whether the borrowings have spurred the economy or became a drag on econom-ic growth. The present paper investigates the real effect of government debt on sustainable economic growth in Malaysia using the Autoregressive Distributed Lag approach for the period of 1970-2015. The results show there are positive significant long- and short-run relationships between government debt and sustainable economic growth. There is also a unidirectional causality running from government debt to sustainable economic growth. The findings indicate that Malaysia’s government debt is an important macroeconomic element for sustainability of economic growth in Malaysia. There is no evidence, however, to con-clude that the level of government debt had any adverse impacts on sustainable economic growth.

Keywords

• government debt
• sustainable economic growth
• Malaysia