DYNAMIC LINKAGES BETWEEN KEY MACROECONOMIC VARIABLES AND ECONOMIC GROWTH

Abstract

Introduction/Main Objectives: This study investigates the dynamic linkages between Malaysia’s economic growth and the key macroeco­nomic variables of foreign direct investment (FDI), inflation, interest rates, and exchange rates, using annual time series data from 1990 to 2019. Background Problems: Malaysia’s economic progress is closely tied to macroeconomic stability and external financial flows, yet fluctuations in inflation, interest rates, and exchange rates often create uncertainty that may weaken the effectiveness of FDI as a catalyst for growth. Novelty: This study offers a comprehensive empirical assess­ment by integrating long-run cointegration analysis with short-run causality testing, providing new insights into the dominant role of FDI within Malaysia’s macroeconomic framework. Research Methods: Time series econometric techniques, including cointegration tests and Granger causality analyses, are applied to annual data covering 1990–2019 to capture equilibrium relationships and directional causality among the variables. Findings/Results: The findings confirm a long-run equilibrium relationship between economic growth, FDI, inflation, interest rates, and exchange rates, with Granger causality results indicating a unidirectional causal flow from FDI to other macroeconomic indicators. Conclusion: FDI emerges as a key driver of Malaysia’s economic growth, under­scoring the importance of strategic investment policies and macro­economic stability for sustaining long-term development.