Effects of fiscal components on economic growth: evidence from Malaysia

The focus of this paper is to investigate the effect of foreign direct investment, employment, private consumption and national savings on GDP. The standard time series techniques are used for the analysis. Malaysia is taken as a case study. These variables are bound together by a theoretical relationship as evidenced in their being cointegrated. The findings based on the generalised variance decomposition(VDC) technique tend to indicate that the GDP is driven mostly by the foreign direct investment and followed by employment and private consumption. The foreign direct investment appears to be the crucial exogenous variable to initiate economic growth. The policy makers are, therefore, advised to encourage foreign direct investment to enhance economic growth