INTERNATIONAL JOURNA L O F RESEARCH AND INNO V A T ION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | V o lume IX Issue XV December 2025 | Special Issue on Economics

The Relationship between Inflation and Economic Growth on

Imports in Malaysia

Hafizah Abdul Rahim^1*,Mohammad Harith Amlus²,Atikah Nor Johari³,Fatin Syazwani Safiyuddin⁴,

Nadiah Mahmad Nasir⁵,Nurul Syafiqah Ahmad Azian⁶

Faculty of Business and Communications, Universiti Malaysia Perlis, Malaysia

^*Corresponding Author

DOI: https://doi.org/10.47772/IJRISS.2025.915EC00773

Received: 14 December 2025; Accepted: 22 December 2025; Published: 30 December 2025

ABSTRACT

This study examines the relationship among inflation, economic growth, and imports in Malaysia using annual

time-series data from 1970 to 2018. As an open developing economy, Malaysia is highly exposed to external

trade dynamics, making imports a critical component of domestic consumption, production, and economic

development. Fluctuations in inflation and economic growth are therefore expected to play an important role in

shaping import behaviour and overall macroeconomic stability. The study adopts a quantitative research design

and utilises secondary data obtained from the World Bank. Imports are specified as the dependent variable,

while inflation, measured by the Consumer Price Index (CPI)and economic growth, proxied by Gross

Domestic Product (GDP), are treated as independent variables. Prior to estimation, the stationarity properties

of the variables are examined using the Augmented Dickey–Fuller (ADF) unit root test. Following

confirmation of stationarity after first differencing, the Ordinary Least Squares (OLS) method is employed to

estimate the relationship among the variables. Diagnostic tests, including serial correlation and

heteroskedasticity tests, are conducted to ensure the robustness and reliability of the estimated model. The

empirical results reveal that economic growth has a positive and statistically significant effect on imports,

indicating that higher output and income levels stimulate import demand in Malaysia. In contrast, inflation is

negatively associated with imports, suggesting that rising price levels suppress import demand by reducing

purchasing power and increasing costs. These findings confirm that inflation and economic growth jointly

influence import behaviour in Malaysia. Overall, the study provides empirical evidence that macroeconomic

stability is essential for sustaining balanced trade performance. The findings offer valuable insights for

policymakers in designing effective inflation management and trade strategies to support sustainable economic

growth in Malaysia. Keywords: Inflation; Economic Growth; Imports; Malaysia; Ordinary Least Squares

INTRODUCTION

Malaysia is a small open developing economy whose macroeconomic performance is closely linked to

international trade, particularly imports. Imports play a crucial role in supporting domestic consumption,

industrial production, and economic expansion by providing essential intermediate goods, capital equipment,

and consumer products. As Malaysia becomes increasingly integrated into global markets, movements in key

macroeconomic indicators, such as inflation and economic growth, have become more important in shaping

import behaviour. Understanding these interactions is therefore fundamental to assessing Malaysia’s economic

resilience and long-term trade sustainability.

Inflation, defined as a continuous increase in the general price level of goods and services, directly affects

purchasing power, production costs, and trade competitiveness. In the Malaysian context, inflationary

pressures are not solely domestically generated. However, they are also influenced by imported inflation

stemming from higher prices of imported goods and the depreciation of the domestic currency (Mundell,

2018). Given Malaysia’s reliance on imported goods and services, increases in import prices are often

transmitted into domestic prices, amplifying inflationary effects and altering consumer and producer behaviour

(Department of Statistics Malaysia, 2019). Economic growth, commonly measured by Gross Domestic Product

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INTERNATIONAL JOURNA L O F RESEARCH AND INNO V A T ION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | V o lume IX Issue XV December 2025 | Special Issue on Economics

(GDP), reflects the expansion of a country’s productive capacity and income generation. Malaysia’s economic

growth has experienced fluctuations over time due to external shocks, global financial crises, and changes in

international trade conditions (Department of Statistics Malaysia, 2019). Periods of robust growth typically

increase demand for imported inputs required to sustain production and investment, whereas slower growth

may reduce import demand. Economic growth is a key determinant of import dynamics in Malaysia.

Previous empirical studies suggest that inflation and economic growth exert significant influences on import

behaviour through both price and income channels. Research by Corrigan (2005) and McCarthy (2007)

demonstrates that import prices and exchange rates play an important role in shaping domestic inflation and

trade flows. Similarly, studies by Su Dinh Than (2014) and Liu and Chen (2017) provide evidence that

inflation and output growth significantly affect imports. However, the magnitude and direction of these effects

vary across countries. Despite this growing body of literature, empirical evidence focusing specifically on

Malaysia remains relatively limited. In recent years, Malaysia has experienced inflationary volatility alongside

fluctuating import trends, including periods of deflation and declining import growth (Department of Statistics

Malaysia, 2019). Rising inflation can erode purchasing power and suppress import demand, while inconsistent

economic growth may constrain the country’s capacity to sustain import-dependent production. These

conditions raise concerns regarding the extent to which inflation and economic growth jointly influence import

behaviour in Malaysia. Without a clear empirical understanding of these relationships, policy responses aimed

at stabilising prices and managing trade flows may be less effective.

Accordingly, this study empirically examines the relationship between inflation and imports in Malaysia and

investigates the effect of economic growth on imports, using annual time-series data from 1970 to 2018. By

analysing the combined influence of inflation and GDP on import behaviour, this study seeks to contribute

empirical evidence to the existing literature and to provide insights relevant to macroeconomic management

and trade policy formulation in Malaysia.

LITERATURE REVIEW

Inflation and Economic Growth

The relationship between inflation and economic growth has been extensively examined in macroeconomic

literature, with mixed empirical findings. Some studies suggest that inflation may not necessarily be harmful to

growth at low or moderate levels. In contrast, others argue that inflation exerts a detrimental effect once it

exceeds certain thresholds. Stilianos Fountas (2010) finds a significant positive relationship between inflation

uncertainty and inflation, supporting the Cukierman–Meltzer hypothesis, and concludes that inflation

uncertainty may not be harmful to economic growth. Similarly, Ahmad Jafari Samimi and Maryam Abedini

(2012) report that inflation has a positive but statistically insignificant effect on GDP growth, indicating that

the growth– inflation relationship may depend on structural and institutional conditions.

Conversely, numerous empirical studies document the negative relationship between inflation and economic

growth. Muhammad Azam (2016) finds that inflation significantly and negatively affects economic growth. In

contrast, Antonia López-Villavicencio and Valérie Mignon (2011) demonstrate that inflation affects growth

nonlinearly, with higher inflation levels exerting adverse effects on output expansion. Evidence from ASEAN

economies, as reported by Su Dinh Than (2014), further supports a statistically significant negative

relationship between inflation and economic growth. These findings highlight that inflation can constrain

economic performance by increasing uncertainty, reducing investment, and weakening purchasing power.

Inflation and Imports

A substantial body of literature examines the relationship between inflation and imports, particularly through

price transmission and exchange rate channels. Several studies find that imports and import prices play a

significant role in shaping domestic inflation dynamics. Corrigan (2005) demonstrates that import prices

significantly explain inflation patterns in the United States, suggesting that imported inflation can influence

domestic price stability. Similarly, McCarthy (2007) shows that exchange rates and import prices significantly

affect domestic inflation across several industrialised economies. Empirical evidence also suggests that

inflation can influence import demand. Rizwan Raheem Ahmed et al. (2018) finds that imports have a positive

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INTERNATIONAL JOURNA L O F RESEARCH AND INNO V A T ION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | V o lume IX Issue XV December 2025 | Special Issue on Economics

and statistically significant impact on inflation in both the short and long run. Muktadir and Shafiullah (2014)

report that imports exert a positive influence on inflation, while exports reduce inflationary pressures. Chibvalo

Zombe et al. (2017) further highlights a bidirectional causal relationship between inflation and trade openness,

indicating that inflation and imports are closely interconnected.

However, not all studies report a positive relationship. Hotniar Siringoringo (2013) finds that inflation does not

significantly affect import values. In contrast, Ulke and Ergun (2011) conclude that consumer prices affect

imports, but that inflation itself does not exert a direct influence. These mixed findings suggest that the

inflation– import relationship may vary across countries depending on economic structure, trade dependence,

and policy frameworks.

Economic Growth and Imports

Economic growth is widely recognised as a key determinant of import demand. As national income increases,

demand for foreign goods, particularly capital goods and intermediate inputs, tends to rise to support

production and investment activities. This income effect is particularly relevant for developing economies such

as Malaysia, where imports play an essential role in sustaining industrial expansion. Although the attached

literature focuses more heavily on inflation–trade interactions, the empirical results reported by Corrigan

(2005), McCarthy (2007), and Liu and Chen (2017) implicitly support the notion that economic growth and

trade flows are closely linked.

Liu and Chen (2017) demonstrate that changes in inflation and exchange rates influence import prices in

China, thereby affecting trade volumes. These findings suggest that economic growth, when combined with

price dynamics, plays a crucial role in shaping import behaviour. For Malaysia, where growth has fluctuated

due to external shocks and trade conditions (Department of Statistics Malaysia, 2019), understanding the

growth– import nexus remains particularly important.

Research Gap and Hypotheses Development

The reviewed literature indicates that although numerous international studies have examined the relationships

among inflation, economic growth, and imports, empirical evidence on Malaysia remains limited. Existing

studies report mixed findings regarding the direction and significance of inflation’s effect on imports and

economic growth, indicating that these relationships are highly context-specific. Moreover, few studies jointly

examine inflation and economic growth as determinants of import behaviour in Malaysia using long-term

timeseries data.

Malaysia has experienced inflationary volatility and fluctuating economic growth alongside changing import

patterns (Department of Statistics Malaysia, 2019). Given the country’s openness and reliance on imports,

inflation and economic growth are expected to influence import demand through price and income channels

jointly. Drawing from the theoretical arguments and empirical evidence discussed above, this study formulates

the following hypotheses:

H1: Inflation has a significant relationship with imports in Malaysia.

H2: Economic growth has a significant relationship with imports in Malaysia.

These hypotheses are empirically tested using time-series econometric techniques, as outlined in the

subsequent methodology section.

METHODOLOGY

This study employs a quantitative research design to empirically examine the relationships among inflation,

economic growth, and imports in Malaysia. A time-series approach is employed to capture long-run

macroeconomic dynamics, consistent with previous empirical studies examining inflation, growth, and trade

relationships (Corrigan, 2005; McCarthy, 2007). Quantitative design enables objective measurement of

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INTERNATIONAL JOURNA L O F RESEARCH AND INNO V A T ION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | V o lume IX Issue XV December 2025 | Special Issue on Economics

relationships among variables and facilitates hypothesis testing using econometric techniques. The study

utilises annual secondary data covering the period from 1970 to 2018, obtained from the World Bank database,

as reported in the attached paper. The long observation period allows for meaningful analysis of structural

changes and macroeconomic fluctuations in Malaysia. Imports are specified as the dependent variable,

reflecting Malaysia’s trade behaviour and external demand conditions. Inflation is measured using the

Consumer Price Index (CPI), while economic growth is proxied by Gross Domestic Product (GDP). These

variables are commonly employed in empirical studies on inflation and trade dynamics (Corrigan, 2005;

McCarthy, 2007; Liu & Chen, 2017). All variables are transformed into natural logarithms to stabilise variance

and allow coefficient estimates to be interpreted as elasticities. While more advanced time-series techniques,

such as cointegration or ARDL models, may provide insights into long-run dynamics, this study adopts the

Ordinary Least Squares (OLS) approach after first differencing to ensure stationarity and avoid spurious

regression. Given the study’s primary objective of examining the direction and significance of relationships

between inflation, economic growth, and imports, OLS remains an appropriate and widely used method in

similar empirical studies (Corrigan, 2005; McCarthy, 2007). The limitation regarding long-run inference is

acknowledged and discussed in the final section of the paper.

Econometric Model Specification

To examine the effects of inflation and economic growth on imports, the study specifies the following

Ordinary Least Squares (OLS) regression model:

ln⁡ 푀_푡= 훽₀+ 훽₁ln⁡퐺퐷푃_푡+ 훽₂ln⁡ 퐶푃퐼_푡+ 휀_푡

where ln 푀_푡represents imports, ln⁡ 퐺퐷푃_푡denotes economic growth, ln 퐶푃퐼_푡captures inflation, and 휀_푡is the error

term. This specification is consistent with earlier empirical work analysing the impact of price and income

variables on trade flows (Corrigan, 2005; McCarthy, 2007). The estimated coefficients 훽₁and 훽₂⁡correspond

directly to the study’s hypotheses. A statistically significant 훽₂supports H1, indicating a relationship between

inflation and imports, while a statistically significant 훽₁supports H2, confirming the relationship between

economic growth and imports.

Prior to estimation, the stationarity properties of the variables are examined using the Augmented Dickey–

Fuller (ADF) unit root test. Stationarity testing is essential to avoid spurious regression results in time-series

analysis. The ADF test is conducted under both intercept and intercept-with-trend specifications, consistent

with standard econometric practice. Variables found to be non-stationary at their levels differ until stationarity

is achieved, as in similar empirical studies reported in the attached paper. To ensure the reliability and validity

of the estimated OLS model, several diagnostic tests are performed. The Breusch–Godfrey Serial Correlation

LM test is applied to detect autocorrelation in the residuals, while the heteroskedasticity test is used to assess

the constancy of error variance. These diagnostic procedures are necessary to confirm that the model satisfies

classical regression assumptions and to ensure accurate statistical inference (McCarthy, 2007).

The methodological framework is explicitly designed to test the hypotheses derived from the Introduction and

Literature Review. By estimating the effects of inflation (CPI) and economic growth (GDP) on imports using

OLS regression, the study directly assesses whether these variables significantly influence import behaviour in

Malaysia. The use of long-term time-series data further strengthens the robustness of the findings and ensures

consistency with prior empirical research (Corrigan, 2005; Liu & Chen, 2017).

FINDINGS AND DISCUSSION

Empirical Findings

This study employs Ordinary Least Squares (OLS) to examine the relationship among inflation, economic

growth, and imports in Malaysia over the period 1970–2018. Prior to estimation, the Augmented Dickey–

Fuller (ADF) unit root tests confirm that all variables are stationary after first differencing, ensuring that the

regression results are not spurious and are suitable for empirical inference. The OLS regression results are

reported in Table 1, in which imports are the dependent variable and inflation (CPI) and economic growth

(GDP) are the independent variables.

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INTERNATIONAL JOURNA L O F RESEARCH AND INNO V A T ION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | V o lume IX Issue XV December 2025 | Special Issue on Economics

Table 1: OLS Estimates of the Effects of Inflation and Economic Growth on Imports in Malaysia (1970–

2018)

Variable

lnGDP

Coefficient

2.970704

−0.906910

0.425975

Probability

0.0000*

lnCPI

0.1710***

0.8546

Constant

Notes: *, **, *** denote statistical significance at the 1%, 5%, and 10% levels, respectively.

The results indicate that economic growth (lnGDP) has a positive and statistically significant effect on imports

at the 1 per cent significance level. This finding suggests that increases in Malaysia’s output and income lead

to higher import demand, reflecting the need for imported intermediate inputs, capital goods, and consumer

products to support domestic production and consumption. This result provides empirical support for

Hypothesis 2 (H2), which posits a significant relationship between economic growth and imports in Malaysia.

Inflation (lnCPI) is found to be negatively associated with imports, with statistical significance at the 10 per

cent level. Although the level of significance is relatively modest, the negative coefficient indicates that rising

price levels tend to suppress import demand through reduced purchasing power and higher costs. This finding

suggests that inflation remains an economically relevant factor influencing import behaviour in Malaysia, even

if its impact is weaker relative to economic growth. This outcome implies that rising price levels tend to

suppress import demand, likely due to declining purchasing power and increased costs faced by consumers and

firms. The negative coefficient supports Hypothesis 1 (H1) and is consistent with the argument that

inflationary pressures can dampen trade activity, particularly in an import-dependent economy such as

Malaysia. The constant term is statistically insignificant, indicating that changes in inflation and economic

growth primarily explain variations in imports.

Diagnostic tests were conducted to assess the reliability of the estimated OLS model. The Breusch–Godfrey

serial correlation test indicates no serious autocorrelation problem in the residuals, while the heteroskedasticity

test confirms the stability of error variance. These results suggest that the model satisfies the classical

regression assumptions and that the estimated coefficients are reliable for statistical inference. Consequently,

the empirical findings can be interpreted with a reasonable degree of confidence.

CONCLUSION AND RECOMMENDATIONS

Conclusion

This study examines the relationship between inflation, economic growth, and imports in Malaysia using

annual time-series data from 1970 to 2018. By applying the Ordinary Least Squares (OLS) approach, the study

provides empirical evidence that both inflation and economic growth significantly affect import behaviour in

Malaysia.

The results show that economic growth has a positive and significant impact on imports, indicating that higher

income and production levels stimulate import demand. Conversely, inflation has a negative relationship with

imports, suggesting that rising prices suppress import activity by reducing purchasing power and increasing

costs. These findings confirm that macroeconomic stability plays a crucial role in shaping Malaysia’s trade

dynamics. The empirical evidence is consistent with previous studies, including Corrigan (2005), McCarthy

(2007), Su Dinh Than (2014), and Liu and Chen (2017), thereby strengthening the validity of the results.

Overall, the research objectives are achieved, and both hypotheses are supported.

Policy Recommendations

Given the negative association between inflation and imports, effective inflation management is essential to

avoid adverse impacts on trade performance and domestic purchasing power. Policymakers should therefore

prioritise price stability through appropriate monetary and fiscal measures. At the same time, Malaysia’s strong

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INTERNATIONAL JOURNA L O F RESEARCH AND INNO V A T ION IN SOCIAL SCIENCE (IJRISS)

ISSN No. 2454-6186 | DOI: 10.47772/IJRISS | V o lume IX Issue XV December 2025 | Special Issue on Economics

import–growth relationship suggests the need to manage import dependence carefully by strengthening

domestic production capacity and encouraging the use of domestically produced intermediate inputs. Selective

import regulation, particularly during periods of rising inflation, may help stabilise prices and support

sustainable economic growth.

Limitations and Future Research

Despite its contributions, this study has several limitations. The empirical model focuses specifically on

inflation

and economic growth as determinants of imports in Malaysia, and does not incorporate other potentially

important variables such as exchange rates, trade openness, population growth, or foreign direct investment.

The exclusion of these variables may give rise to omitted variable bias. However, this modelling choice is

intentional in order to maintain focus on the core macroeconomic variables of interest and to ensure model

parsimony. Future research is encouraged to extend the analysis by incorporating additional explanatory

variables and applying alternative econometric techniques to enhance robustness.

REFERENCES

1. Corrigan, T. D. (2005). The relationship between import prices and inflation in the United States. Journal

of Applied Business and Economics. Department of Statistics Malaysia. (2019). Selected

macroeconomic indicators. Department of Statistics Malaysia.

2. Fountas, S. (2010). Inflation, inflation uncertainty and growth: Are they related? Economic Modelling,

27(5), 896–899. https://doi.org/10.1016/j.econmod.2010.06.001

3. Liu, H. Y., & Chen, X. L. (2017). The imported price, inflation and exchange rate pass-through in China.

Cogent Economics & Finance, 5, 1279814. https://doi.org/10.1080/23322039.2016.1279814

4. López-Villavicencio, A., & Mignon, V. (2011). On the impact of inflation on output growth: Does the

level of inflation matter? Journal of

Macroeconomics,33(3),455–464.

https://doi.org/10.1016/j.jmacro.2011.02.003

5. McCarthy, J. (2007). Pass-through of exchange rates and import prices to domestic inflation in some

industrialized economies. Eastern Economic Journal, 33(4), 511–537.

6. Mundell, R. A. (2018). Inflation and exchange rate dynamics. (As cited in the attached paper).

7. Samimi, A. J., & Abedini, M. (2012). Control of corruption and inflation tax: New evidence from

selected developing countries. Procedia – Social and Behavioral Sciences, 62, 441–445.

https://doi.org/10.1016/j.sbspro.2012.09.072

8. Su Dinh Than. (2014). Threshold effects of inflation on growth in the ASEAN-5 countries: A panel

smooth transition regression approach. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2411931

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