Revisiting the economic growth model: The roles of exports, employment, and foreign direct investment

Abstract

The focal point of this study is to examine the relationship between the selected macroeconomic variables namely foreign direct investment, exports, and employment on the gross domestic product. In estimating the model, this study adopts the multiple regression model using ordinary least square approach. The yearly data is utilized spinning from 1991 to 2025. In general, all variables under observation are important in explaining the dependent variable in the long run at 99% confidence level. Specifically, the finding suggests that the exports (X) and employment growth rate (EGr) have a strong positive relationship with gross domestic product (GDP). On the other hand, foreign direct investment (FDI) also has a weak positive relationship with GDP, but it is not significant. The estimated model passed all diagnostic tests, including heteroscedastic, multicollinearity, and autocorrelation. By implication, both exports and the employment growth rate have a significant effect impact on gross domestic product in the long run, thus indicating high reliability on the rate of increase in exports and employment in Malaysia. Simply put, the higher exports and employment growth rate, the higher GDP will be increase in the long run. Therefore, the higher exports and employment growth rate can be a catalyst to increase the gross domestic product in Malaysia in the long term, especially from years 1991 to 2025.