Research methodology

The relationship between variables can be found by used the multiple regression analysis.
The data on this research is from secondary and qualitative data which collected from the
official economic survey of Malaysia (Bloomberg). The economic growth is dependent
variable which the GDP as indicator the growth of country. The independent variable is
echange rate, inflation and money supply of Malaysia for period time of 1988 to 2017. The
Ordinary least square (OLS) like correlation and multiple regression analysis are used to
determine the impact of echange rate on economic growth of Malaysia. Econometric model
is given below:

GDP=f(ER+INF+M2), GDP=B0+B1ER+B2INF+B3M2

GDP= Gross Domestic Price, ER= Echange Rate, INF= InflatioN, INR= Money supply,
B=intercept

Conceptual framework

INDEPENDENT VARIABLE DEPENDENT VARIABLE

ECHANGE RATE

INFLATION GROSS DOMESTIC PRODUCT (GDP)

MONEY SUPPLY

This research confirm the stationarity state of the variables that entered the model used the
estimation commences with a unit root test. The Augmented Dicky Fuller test will be applied
to test for the stationarity. The first step is to test the stationarity at level and if the variable
are not stationar. Thus, next step is to make the difference and test for the stationarity of
the differenced variables. After that OLS model will be applied to show the direction and
significant of the relationship between GDP rate and independent variables (echange rate,
inflation and money supply).
3.1 Results and Finding

At level First difference

Variable t-statistic Prob* t-statistic Prob*
GDP -1.3797 0.5782 -4.5542 0.0012
ER -1.1479 0.6826 -4.6874 0.0008
INF -1.9065 0.3248 -4.3549 0.0020
M2 -3.6556 0.0106 -3.3577 0.0216
Table 1: unit root test results (ADF)

At level First difference

Variables t-statistic prob t-statistic prob
GDP -1.3797 0.5782 -4.5542 0.0012
ER -0.7235 0.8253 -7.4167 0.0000
INF -1.9018 0.3269 -4.4518 0.0015
M2 -3.6556 0.0106 -3.2995 0.0246
Table 2: unit root test results (Phillips-Perron (PP).

The Augmented Dickey Fuller (ADF) test is used to check the unit root properties of the
variables so that it can be estimated what technique is appropriate for research model. The
results of unit roots test for the GDP rate, echange rate, inflation and money supply is given
in the table 1. The result shows that the ADF unit root for GDP, ER, and INF are not
stationary at level ecept M2 were stationary. The null hypothesis cannot accepted since the
variable are non-stationary at their levels. However, all variables are stationary at first
difference with both t-statistic and prob. Thus, the null hypothesis will accepted since the all
variable are stationary at first difference.

The table 2 reports the results of the PP test produces results similar to those of ADF test.
The Phillips-Perron show the same results as ADF test. The unit roots shows that the ADF
unit root for GDP, ER, and INF are not stationary at level. Then, all the variable stationary
with the GDP at the first difference.
Dependent Variable: LGDP
Method: Leas t Squares
Date: 12/12/19 Tim e: 20:53
Sam ple: 1988 2017
Included obs ervations : 30

Variable Coefficient Std. Error t-Statis tic Prob.

C -16.26174 2.395306 -6.789003 0.0000

LEXR 1.958683 0.263547 7.432007 0.0000
LINF 0.536345 0.835132 0.642228 0.5263
LM2 0.742227 0.178861 4.149737 0.0003

R-s quared 0.988284 Mean dependent var 4.828909

Adjus ted R-s quared 0.986932 S.D. dependent var 0.703289
S.E. of regres s ion 0.080395 Akaike info criterion -2.080153
Sum s quared res id 0.168049 Schwarz criterion -1.893326
Log likelihood 35.20229 Hannan-Quinn criter. -2.020385
F-s tatis tic 731.0781 Durbin-Wats on s tat 0.848925
Prob(F-s tatis tic) 0.000000

Table 3: Results of Ordinary Least Squares Method

Table 3 show the results of Ordinary Least Squares Method for all variables. The OLS show
the direction and significant of the relationship between GDP rate and independent variables
(echange rate, inflation and money supply). The results of OLS show that all variable has
are positive relation and significant between dependent variable.

The echange rate has positive relation with the GDP, where increase 1% in echange rate will
increase GDP by 1.95%. The inflation has positive relation and significant with the GDP of
Malaysia. It show that 1% increase in INF will raise GDP by 0.53%. The money supply also
has positive relation and significant of GDP for that period time. The result show, increase
1% in money supply (M2) will increase the GDP of Malaysia by 0.74%. Therefore,

The value of R2 in the table 3 represents that 98.8% of the variations in the dependent
variable is due to independent variables included in the model. The Durbin Watson (DW)
statistic is a test for autocorrelation in the residuals from a statistical regression analysis
which the value always between 0 and 4. The table show Durbin Watson (DW) is 0.84.
Null Eigenvalue Trace 5% Critical Ma-Eigen 5% Critical
Hypothesis statistic Value Statistic Value
r=0 0.582900 43.25949 47.85613 24.48402 27.58434
r≤1 0.367130 18.77547 29.79707 12.80973 21.13162
r≤2 0.155184 5.965736 15.49471 4.721809 14.26460
r≤3 0.043454 1.243928 3.841465 1.243928 3.841465
Table 4 Johansen Trace Test for Co-integration

The Johansen’s test results for all variables are reported in table 3. The co-integration is a
crucial test for the existence of long relationship among variables. According to Johasen
(1991), this produce relies heavily on the relationship between the rank of a matri and its
characteristic roots as buttressed.

Based on the table 4, the result of co-integration is the critical value greater than Ma-Eigen
statistic. The null hypothesis of r ≤ 1, r ≤ 2, and r ≤ 3 were accepted by trace statistics and
ma-Eigen value. The implication is that there is long run relationship among the variables
with 3 co-integrating equation at 5% level of significant in the model.
Conclusion

This research to study eamines the impact of echange rate, inflation and money
supply on the economic growth of Malaysia by used the yearly data for the period of 1988 to
2017. Multiple regression technique is used to analyse the relationship between dependent
variable (Economic growth) and independent variable (echange rate, inflation and money
supply). Results indicate that echange rate, inflation and money supply significantly affect
economic growth. Echange rate has positive relation with gross domestic product of
Malaysia as an engine for the economic growth of the country. In other means, increase in
echange rate will increase the GDP of Malaysia. Thus, increase GDP will lead the economic
growth.

Inflation and money supply has significantly with economic growth of Malaysia.
Increase in inflation means the price of domestic product will higher than other country.
People will buy products from other countries rather than own product. Thus, the imports
will increase. The value of money will decrease because ecess for foreign money. Therefore,
the eports of domestic product to other country will increase because domestic product is
cheaper than other country. The GDP will increase, moderate inflation is necessary for the
growth but above the specific level it can leads to the depreciation of the growth of country.

As recommendation, Malaysia as developing country, it needs to import large

quantities of raw materials and capital goods for its development. However, naturally its
capacity to eports will be low. Therefore, its demand for foreign echange is more that leads
to depreciation of its echange rate and in this way economic growth will be affected. Other
than that, if Malaysia have depreciates in currency its eport will become cheaper and hence
eport will increase. In the short run the inflation will increase and the whole society will have
to bear the social cost of inflation but in long run output will increase that is the aim of
every country.
Appendi

UNIT ROOT TES T RES ULTS TABLE (ADF)

Null Hypothesis: the variable has a unit root
At Level
LGDP LEXR LINF LM2
With Constant t-Statistic -1.3797 -1.1479 -1.9065 -3.6556
Prob. 0.5782 0.6826 0.3248 0.0106
n0 n0 n0 **
With Constant & Trend t-Statistic -1.8526 -2.3633 -1.9218 -1.6694
Prob. 0.6527 0.3895 0.6176 0.7369
n0 n0 n0 n0
Without Constant & Trend t-Statistic 3.2114 -1.4199 11.6972 2.3819
Prob. 0.9993 0.1418 1.0000 0.9944
n0 n0 n0 n0
At First Difference
d(LGDP) d(LEXR) d(LINF) d(LM2)
With Constant t-Statistic -4.5542 -4.6874 -4.3549 -3.3577
Prob. 0.0012 0.0008 0.0020 0.0216
*** *** *** **
With Constant & Trend t-Statistic -4.6105 -4.5972 -4.7185 -4.1200
Prob. 0.0052 0.0053 0.0040 0.0158
*** *** *** **
Without Constant & Trend t-Statistic -3.5196 -4.5122 -0.6788 -1.1682
Prob. 0.0010 0.0001 0.4131 0.2153
*** *** n0 n0

Notes:
a: (*)Significant at the 10%; (**)Significant at the 5%; (***) Significant at the 1% and (no) Not Significant
b: Lag Length based on SIC
c: Probability based on MacKinnon (1996) one-sided p-values.
UNIT ROOT TES T RES ULTS TABLE (PP)
Null Hypothesis:
This Result is Thethe variable
Out-Put of has a unitHas
Program rootDeveloped By:
Dr. Imadeddin AlMosabbeh At Level
College of Business and Economics LGDP LEXR LINF LM2
With Constant
Qassim University-KS A t-Statistic -1.3797 -0.7235 -1.9018 -3.6556
Prob. 0.5782 0.8253 0.3269 0.0106
n0 n0 n0 **
With Constant & Trend t-Statistic -2.0162 -2.3148 -1.9244 -0.8442
Prob. 0.5685 0.4134 0.6162 0.9492
n0 n0 n0 n0
Without Constant & Trend t-Statistic 2.9937 -4.2889 8.6847 5.9634
Prob. 0.9988 0.0001 1.0000 1.0000
n0 *** n0 n0
At First Difference
d(LGDP) d(LEXR) d(LINF) d(LM2)
With Constant t-Statistic -4.5542 -7.4167 -4.4518 -3.2995
Prob. 0.0012 0.0000 0.0015 0.0246
*** *** *** **
With Constant & Trend t-Statistic -4.6105 -7.0718 -4.7616 -4.1197
Prob. 0.0052 0.0000 0.0036 0.0158
*** *** *** **
Without Constant & Trend t-Statistic -3.5048 -4.4574 -0.8707 -1.7259
Prob. 0.0011 0.0001 0.3299 0.0798
*** *** n0 *

Notes:
a: (*)Significant at the 10%; (**)Significant at the 5%; (***) Significant at the 1% and (no) Not Significant
b: Lag Length based on SIC
c: Probability based on MacKinnon (1996) one-sided p-values.

This Result is The Out-Put of Program Has Developed By:

Dr. Imadeddin AlMosabbeh
College of Business and Economics
Qassim University-KS A
OLS method result

Dependent Variable: LGDP

Method: Least Squares
Date: 12/12/19 Time: 20:53
Sample: 1988 2017
Included observations: 30

Variable Coefficient Std. Error t-Statistic Prob.

C -16.26174 2.395306 -6.789003 0.0000

LEXR 1.958683 0.263547 7.432007 0.0000
LINF 0.536345 0.835132 0.642228 0.5263
LM2 0.742227 0.178861 4.149737 0.0003

R-squared 0.988284 Mean dependent var 4.828909

Adjusted R-squared 0.986932 S.D. dependent var 0.703289
S.E. of regression 0.080395 Akaike info criterion -2.080153
Sum squared resid 0.168049 Schwarz criterion -1.893326
Log likelihood 35.20229 Hannan-Quinn criter. -2.020385
F-statistic 731.0781 Durbin-Watson stat 0.848925
Prob(F-statistic) 0.000000
Date: 12/12/19 Tim e: 17:45
Sam ple (adjus ted): 1990 2017
Included obs ervations : 28 after adjus tm ents
Trend as s um ption: Linear determ inis tic trend
Series : LGDP LEXR LINF LM2
Lags interval (in firs t differences ): 1 to 1

Unres tricted Cointegration Rank Tes t (Trace)

Hypothes ized Trace 0.05

No. of CE(s ) Eigenvalue Statis tic Critical Value Prob.**

None 0.582900 43.25949 47.85613 0.1264

At m os t 1 0.367130 18.77547 29.79707 0.5091
At m os t 2 0.155184 5.965736 15.49471 0.6996
At m os t 3 0.043454 1.243928 3.841465 0.2647

Trace tes t indicates no cointegration at the 0.05 level

* denotes rejection of the hypothes is at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values

Unres tricted Cointegration Rank Tes t (Maxim um Eigenvalue)

Hypothes ized Max-Eigen 0.05

No. of CE(s ) Eigenvalue Statis tic Critical Value Prob.**

None 0.582900 24.48402 27.58434 0.1187

At m os t 1 0.367130 12.80973 21.13162 0.4699
At m os t 2 0.155184 4.721809 14.26460 0.7765
At m os t 3 0.043454 1.243928 3.841465 0.2647

Max-eigenvalue tes t indicates no cointegration at the 0.05 level

* denotes rejection of the hypothes is at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values

Unres tricted Cointegrating Coefficients (norm alized by b'*S11*b=I):

LGDP LEXR LINF LM2

-12.08715 37.78678 36.55903 4.087723
4.387465 3.982571 -40.60187 5.521778
-0.643923 1.616047 41.94516 -9.585683
-12.26698 16.50086 -51.90016 20.96639

Unres tricted Adjus tm ent Coefficients (alpha):

D(LGDP) -0.065127 -0.009411 0.028276 0.001197

D(LEXR) -0.033548 -0.008281 0.004103 -0.003757
D(LINF) -0.002687 0.005873 -0.000704 0.000908
D(LM2) -0.006995 0.011107 0.016045 -0.003907

1 Cointegrating Equation(s ): Log likelihood 230.7480

Norm alized cointegrating coefficients (s tandard error in parenthes es )

LGDP LEXR LINF LM2
1.000000 -3.126194 -3.024619 -0.338188
(0.30299) (1.28679) (0.27409)

Adjus tm ent coefficients (s tandard error in parenthes es )

D(LGDP) 0.787201
(0.23705)
D(LEXR) 0.405495
(0.09729)
D(LINF) 0.032478
(0.02838)
D(LM2) 0.084553
(0.12575)

2 Cointegrating Equation(s ): Log likelihood 237.1528

Norm alized cointegrating coefficients (s tandard error in parenthes es )

LGDP LEXR LINF LM2
1.000000 0.000000 -7.852304 0.899238
(4.15518) (0.90061)
0.000000 1.000000 -1.544269 0.395825
(1.36188) (0.29518)

Adjus tm ent coefficients (s tandard error in parenthes es )

D(LGDP) 0.745913 -2.498421
(0.25086) (0.74125)
D(LEXR) 0.369162 -1.300635
(0.10098) (0.29839)
D(LINF) 0.058246 -0.078143
(0.02554) (0.07547)
D(LM2) 0.133283 -0.220096
(0.13027) (0.38493)

3 Cointegrating Equation(s ): Log likelihood 239.5137

Norm alized cointegrating coefficients (s tandard error in parenthes es )

LGDP LEXR LINF LM2
1.000000 0.000000 0.000000 -1.024001
(0.14263)
0.000000 1.000000 0.000000 0.017592
(0.03261)
0.000000 0.000000 1.000000 -0.244927
(0.01616)

Adjus tm ent coefficients (s tandard error in parenthes es )

D(LGDP) 0.727705 -2.452726 -0.812849
(0.23888) (0.70561) (1.27799)
D(LEXR) 0.366520 -1.294004 -0.718149
(0.10048) (0.29681) (0.53757)
D(LINF) 0.058699 -0.079281 -0.366232
(0.02550) (0.07532) (0.13642)
D(LM2) 0.122951 -0.194167 -0.033688
(0.12277) (0.36265) (0.65682)