Factors involved in Economic Development and their Impact on State-Building in Malaysia

Abstract

The successful history of poverty elimination and impressive economic development in Malaysia for the post-colonial period regarded a worth model for growth in developing world. The question raised in this achievement was; how economic development affected on the state-building in the country? Therefore, the motive of the study is to examine the determinants of economic development on state-building. Autoregressive distributed lag (ARDL) model employed to test economic factors affecting the state-building. The study covered data spanning from 1970-2017. The long-run co-integration in the model has confirmed, and econometric diagnostic tests are robust. The study findings show that human capital, oil rent, and per capita income, positively and significantly affect state-building in the long-run. In the short-run, human capital and oil revenue effects positively and significant. Population growth, democracy, inflation, and financial development have confirmed a negative and significant impact on state-building. Policy implication has highlighted the importance of human capital development, macroeconomic stability, and population growth in Malaysia's state-building. Demographic transition exerts a considerable negative effect on state-building in the long-run, affecting the economic health and steady-state growth. Financial development inserting a negative impact on state-building to promote development. The study recommended that the economic policymakers and relevant bureaucracies correct the fiscal deficit and ease domestic financial institutions into the credits based on the findings. Malaysia is facing a demographic threat in the long run due to the aging population and low fertility rate; therefore, it have to re-address the population policy.