Government Spending Reformation, Human Capital, and Economic Growth in Malaysia: Education and Healthcare

The study aims to investigate the role of government spending on the relevant human capital components in the economic performance of Malaysia by adopting secondary data published by the Department of Statistics Malaysia, the Economic Planning Unit, and the United Nation Development Programme. Time- series estimation was adopted to analyze the data. Using GDP as the dependent variable, government spending on education and healthcare along with the human development index as the independent variables, this study sought to explore the significant role of government spending towards economic growth from the human capital aspect. The empirical analysis is done using the Unit Root Tests, Autoregressive Distributed Lag (ARDL) estimation, and Toda-Yamamoto Causality Test to investigate the integration order as well as the existence of a relationship between the variables in the model. The study reveals a significant long-run positive relationship between government spending on healthcare and the human development index with the GDP. A negative significant relationship between government spending on education to GDP was found. Next, no causality is detected between government spending and the human development index. Plus, there is causality detected from education spending towards healthcare spending. The results are thus in favor of drastic changes adoption to improve the education and healthcare system to align with the current demand