Financial Sustainability Mechanism for Malaysia with the Keynesian Macroeconomic Framework

This study examined the relationship between fiscal policy, foreign direct investment (FDI), exchange rate, public debt and economic growth in Malaysia using Autoregressive Distributed Lag (ARDL) approach under the framework of Keynesian economics. The time series annual data were collected from 1970 to 2022 from the World Bank and the Department of Statistics Malaysia (DOSM). The results indicate that there was a long run cointegration between variables. Foreign direct investment was positively and significantly related with economic growth. Meanwhile government expenditure was positively related with economic growth but with delayed effect. The results showed that exchange rate had weak positive long run effects, while public debt did not have a significant effect on economic growth. The results of Error Correction Model (ECM) and diagnostic tests also supported the stability and reliability of the selected ARDL model. In general, the results were of empirical value for policy makers in focusing in the right macroeconomic variables that encourage sustainable economic growth in Malaysia.

Economic Growth, Fiscal Policy, Foreign Direct Investment, Public Debt, Exchange rate, ARDL

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