THE IMPACT OF INFLATION, EXPORT, FOREIGN DIRECT INVESTMENT AND UNEMPLOYMENT ON MALAYSIA’S ECONOMIC GROWTH: CASE OF ASEAN TRADE IN GOODS AGREEMENT (ATIGA)

Abstract

This paper investigates the relationship of macro-economic variables on Malaysia’s economic growth which is foreign direct investment (FDI), export, inflation rate and unemployment rate. Particular attention is given to the ASEAN Trade in Goods Agreement (ATIGA) as this agreement is one of the main regional FTA with Malaysia’s participation and consist of other 9 ASEAN member states (AMS). A sub-sample t-test being used to compared the data before and after the implementation period and found that all three variables which are export, FDI and unemployment rate is significant and has an impact on Malaysia’s GDP. However, no evidence shows that the inflation rate in Malaysia has been influenced by ATIGA. Time series secondary data spanning from 2003 to 2018 also has been used to measure the impact of ATIGA on Malaysia’s economic growth revealed that Malaysia’s participation in ATIGA encourages Malaysia’s export and FDI flow into Malaysia which have a positive impact on Malaysia’s Gross Domestic Product (GDP). In addition, we find specific evidence that export (EXPT) and FDI has risen significantly after the agreement entered into force in May 2010. However, the unemployment and inflation rate have a negative relationship on Malaysia’s economic growth as it works on opposite direction, as unemployment and inflation reduce, the GDP will increase. The result suggests the policy makers should continue to pursue high level regional FTA in order to boost Malaysia’s export and increase the inflow of FDI into Malaysia.