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Determinants of External Debt: The Case of Malaysia

In: Emerging Trends in Banking and Finance

Author

Listed:
  • Korhan Gokmenoglu

    (Eastern Mediterranean University)

  • Rabiatul Adawiyah Mohamed Rafik

    (Eastern Mediterranean University)

Abstract

Since the 1980’s, Malaysia’s external debt has been on an increase as a result of several economic factors, including two economic crises. Rapid increase in the external debt has become a national concern. In this study, we aim to investigate the determinants of Malaysia’s external debt for the period of 1970 to 2013 by using annual data. For this aim, we have performed the Johansen cointegration test, vector error correction model (VECM), and Granger causality test. The findings show that there is a long-run relationship between the variables and the GDP, recurrent and capital expenditure Granger causes external debt. These findings indicate that GDP growth is a solution for the external debt problem. In contrast, we believe that recurrent expenditures should especially be kept under control, and we offer several policy recommendations, such as reforming subsidy systems. Also, finding alternative sources to finance capital expenditure is important for a healthy growth of the economy.

Suggested Citation

  • Korhan Gokmenoglu & Rabiatul Adawiyah Mohamed Rafik, 2018. "Determinants of External Debt: The Case of Malaysia," Springer Proceedings in Business and Economics, in: Nesrin Ozatac & Korhan K. Gökmenoglu (ed.), Emerging Trends in Banking and Finance, pages 16-33, Springer.
    • Handle: RePEc:spr:prbchp:978-3-030-01784-2_2
    DOI: 10.1007/978-3-030-01784-2_2
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    Cited by:

    1. Ngasamiaku, Wilhelm M. & Ngong'ho, Sende, 2022. "Macroeconomic Determinants of Public Debt in Tanzania: Empirical Evidence and lessons for Post COVID-19 Recovery," African Journal of Economic Review, African Journal of Economic Review, vol. 10(5), December.
    2. Zahir Mohamed Omar & Mohamed Isse Ibrahim, 2021. "Determinants of External Debt: The Case of Somalia," Asian Development Policy Review, Asian Economic and Social Society, vol. 9(1), pages 33-43, March.
    3. Pratibha, S. & Sharma, Vishal & Krishna, M., 2024. "Nexus between total natural resource rents and public debt within symmetric and asymmetric framework: Fresh insight from resource-rich economy," Resources Policy, Elsevier, vol. 93(C).

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