Discuss about the Political Credibility And Economic Development.
Malaysia is one of the developed nations, which has been facing serious issues with its economic development through last three decades (Diamond 2015). Various issues like oil price shock, fall in Foreign Direct Investment (FDI) has affected the country’s economic growth (Akalpler and Duhok 2018). Though the successive government programs have effectively constrained the inflation below 2.08% level, the country has been facing negative growth since 1985 (Park and Yoo 2014). Post Global Financial Crisis (GFC) country’s economy has been struggling hard to increase its growth rate, however, it has failed to do so. This report is meant to analyse an economic journal “Does monetary policy affect economic growth: evidence from Malaysia: published in emerald insight, on March of 2017in order to understand usage of various economic tools in real life scenario. The report will consider how well economic theories like demand and supply scarcity, comparative advantage and elasticity affect the economic performance of an economy. In addition to this under the purview of the various economic tools, the report will portray economic growth status of the Malaysian economy.
According to the Ergin Akalpler, the selected paper has been primarily developed to trace the relationship between the economic growth and monetary policy under the purview of the developing economy. In addition to this, selected business article has provided focus on relation between the inflation, interest rates, supply of money and Gross Domestic Product (GDP). The article has considered the case of Malaysia to check the above mentioned relationships through utilising the various quantitative and qualitative measurements (Akalpler and Duhok 2018). Moreover, utilising the growth of computer software and least square estimations, the report has investigated the connection and significance level between the selected variables. From the analysis the report has showcased that there is a positive relationship between the economic growth and factors like money supply, inflation, and interest rate. The report has also showcased that if there is 1% change in the inflation rate, then it lead to increase in economic growth by 77% (Akalpler and Duhok 2018). On the other hand, rise in money supply and interest also has a positive effect on the economic growth, which has been quantified through the low coefficient of least square method estimation. 0.02 being a lower coefficient highlights that a small change in the selected variables can lead to a major change in the economic growth due to higher elasticity of the variables (Bhattacharya et al. 2016).
Figure 1: Malaysian growth and FDI
Source: (Fadhil and Almsafir 2015)
Lastly, the report also portrays that Malaysia has been facing reduced economic growth due to their lower inflation rate, fall in money supply and production of higher labour intensive goods and service (Mohamed et al. 2017). In addition to this, from figure 1, it can be seen that country has been facing lower flow of FDI, which has been also promoting lower economic growth of the country. Considering this it can be stated that it is one of the best suited article for this business report. It helps to grow familiarity with the demand-supply, scarcity, elasticity, inflation and various other economic tools and language of economic analysis and reasoning through portraying the economic condition of the Malaysia.
Chosen article has been developed depending upon the economic theories of demand and supply, elasticity, comparative advantage, international trade and scarcity of resources. From the figure 2, it can be seen that there has been certain gap in the money supply and money demand. Inflation rate of the country has been low since 2000, which caused lack of foreign capital inflow reducing the demand of Malaysian currency in foreign countries (Ghazail et al. 2015). It has also constrained the interest rate to rise on investment side. Subsequently the article has found that there has been casual relationship between the factors like money supply, inflation, employment and scarcity (Akalpler and Duhok 2018).
Figure 2: monetary indicator of Malaysia
Source: (Evan et al. 2015)
With rise in money supply, there will rise in inflation and it will provide essential boost to enhance the interest rate through rise in the employment rate (Friedman 2017). Considering the supply side, low interest rate has also been hampered the FDI and introduction of new firm in the country. Due to lack of enough money supply and FDI, employment of the country has been also been unchanged over a long time, which has curtailed the economic growth to a great extent (Akalpler and Duhok 2018). The report has highlighted that capital accumulation or the investment is one of the major factors that lead to economic growth. The report has found that many Asian countries like China, India, Singapore has been grown at a large scale depending upon the FDI led growth (Pradhan 2017). Considering the case of Malaysia it has been found that the country has failed to enhance its interest rate, which has reduced the capital accumulation to provide stimuli to the economic growth of the nation (Borner et al. 2016). On the other hand it has also been observed that lack of money supply has failed to spur the real rate of return, which forced the economy to have lower economic growth over the last three decades.
The report has found that there has been negative growth in Malaysia since last three decades, thus it has constructed the research in such a way that it can be utilised by the governmental authority to form policies for economic growth (Liew et al. 2016). According to the article, there have been various policies in the past decade from the government, which were aimed to enhance the economic growth of the country. For instance, the government has used trade liberalisation policies through export promotion and import substitution; however, it has failed to boost the economy due to scarcity of skilled labour in the country and lower interest rate (Ormaechea et al. 2017). On other hand, brain drain is one of the factors that have caused migration of the labour from Malaysia to developed countries like US and UK (Spaan and Naerssen 2017). Under this scenario government has taken financial liberalisation policies through domestic financial reform, enhanced capital flows and FDI. Scenario remained same though there has been repetitive try from the government to enhance the economic growth.
According to the theory of money supply, if there is lack of money supply, then it will lead to rise in the interest rate. With rise in interest rate it is expected that, there will be higher FDI, which can lead to higher growth of an economy (Engel 2014). However, considering the case of Malaysia, the selected article has highlighted there were no substantial growth in economy. This scenario of Malaysian economy hampers the common belief of economic theories. In addition to this, it has been argued by Porter and Kramer (2018), that if there is fall in unemployment, then it means that the economy has been growing. Considering the case of Malaysia, it can be seen that the article has highlighted there is negative growth rate in front of Malaysia during last three decades (Akalpler and Duhok 2018). Positive relationship between the inflation and economic development is one of the major factors that have been observed from the selected article. According to the capitalist model of Keynes, certain level of inflation is necessary for economic development, however, if it goes beyond the natural rate, then it can lead to stagflation, where the price of goods and services can become too high and growth of GDP will be stagnant (Keynes 2016). In addition to this, higher level of inflation can also lead to market breakdown in absence of lower FDI, depending upon the market scenario of the economy (McCombie and Thirlwall 2016). Summing these, it can be stated that the finding of the report is contradictory to some extent under the purview of standard economic theories and the Malaysian economy.
Conclusion:
From the above analysis of the selected article it can be highlighted that economic tools like supply and demand, elasticity, scarcity and comparative advantage acts as effective tools to discuss economic condition by the researchers. Considering the selected paper, it can also be stated that the demand and supply gap of the FDI has affected the Malaysia’s economic condition. Rate of inflation and lack of money supply has caused the country’s economy to face lower growth rate since past three decades. In addition to this, Malaysia being a labour intensive country has faced higher elasticity of its produce. It has affected the economic condition of the country largely, which can be seen from the drop in economic growth during the GFC. Volatility in the market and lack of incentive as well as scarcity of skilled labours to open new business in the country has also hampered the economic growth of the country. To conclude it can be stated that the selected article helps to develop familiarity with the demand-supply, scarcity, elasticity, inflation and various other economic tools and language of economic analysis and reasoning through portraying the economic condition of the Malaysia.
Reference:
Akalpler, E. and Duhok, D., 2018. Does monetary policy affect economic growth: evidence from Malaysia. Journal of Economic and Administrative Sciences.
Bhattacharya, M., Paramati, S.R., Ozturk, I. and Bhattacharya, S., 2016. The effect of renewable energy consumption on economic growth: Evidence from top 38 countries. Applied Energy, 162, pp.733-741.
Borner, S., Brunetti, A. and Weder, B., 2016. Political credibility and economic development. Springer.
Diamond, L., 2015. Facing up to the democratic recession. Journal of Democracy, 26(1), pp.141-155.
Engel, C., 2014. Exchange rates and interest parity. In Handbook of international economics (Vol. 4, pp. 453-522). Elsevier.
EVAN, L., Lee, A.S.Y. and Arip, M.A., 2015. Macroeconomics determinants of external debt in Malaysia. International Journal of Economic Sciences, 4(4), pp.14-26.
Fadhil, M.A. and Almsafir, M.K., 2015. The role of fdi inflows in economic growth in Malaysia (time series: 1975-2010). Procedia Economics and Finance, 23, pp.1558-1566.
Friedman, M., 2017. Quantity theory of money. The New Palgrave Dictionary of Economics, pp.1-31.
Ghazali, M.F., Lean, H.H. and Bahari, Z., 2015. Is gold a good hedge against inflation? Empirical evidence in malaysia. Kajian Malaysia: Journal of Malaysian Studies, 33.
Keynes, J.M., 2016. General theory of employment, interest and money. Atlantic Publishers & Dist.
Liew, S.L., Mansor, S.A. and Puah, C.H., 2016. Macroeconomic determinants of capital flight: An empirical study in Malaysia. International Business Management, 10(13), pp.2526-2534.
McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments constraint. Springer.
McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments constraint. Springer.
Mohamed, M.R., Singh, K.S.J. and Liew, C.Y., 2017. Impact of foreign direct investment & domestic investment on economic growth of Malaysia. Malaysian Journal of Economic Studies, 50(1), pp.21-35.
Oecd.org. (2018). [online] Available at: https://www.oecd.org/countries/malaysia/2682426.pdf [Accessed 22 Mar. 2018].
Ormaechea, M.S.A., Komatsuzaki, M.T. and Correa-Caro, C., 2017. Fiscal Reforms, Long-term Growth and Income Inequality. International Monetary Fund.
Park, S.Y. and Yoo, S.H., 2014. The dynamics of oil consumption and economic growth in Malaysia. Energy Policy, 66, pp.218-223.
Porter, M.E. and Kramer, M.R., 2019. Creating shared value. In Managing Sustainable Business (pp. 327-350). Springer, Dordrecht.
Pradhan, J.P., 2017. Emerging multinationals: A comparison of Chinese and Indian outward foreign direct investment. Institutions and Economies, pp.113-148.
Spaan, E. and van Naerssen, T., 2017. Migration decision-making and migration industry in the Indonesia–Malaysia corridor. Journal of Ethnic and Migration Studies, pp.1-16.
The Business Times. (2018). Malaysia monetary policy to focus on growth after inflation ebbs. [online] Available at: https://www.businesstimes.com.sg/government-economy/malaysia-monetary-policy-to-focus-on-growth-after-inflation-ebbs [Accessed 22 Mar. 2018].
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