THE IMPACT OF EDUCATION EXPENDITURE, HEALTH EXPENDITURE, AND FINANCIAL DEVELOPMENT ON ECONOMIC GROWTH IN MALAYSIA
DOI:
https://doi.org/10.35631/AIJBES.829075Keywords:
ARDL, Economic Growth, Education Expenditure, Healthcare Expenditure, Financial Development, Malaysia, Time Series AnalysisAbstract
This study examines the effect of education expenditure, healthcare expenditure, and financial development on economic growth in Malaysia over the period 1991 to 2024, using annual time series data and the Autoregressive Distributed Lag (ARDL) bounds testing approach. The study is motivated by Malaysia's urgent need to allocate constrained fiscal resources effectively as it approaches the World Bank's high-income threshold. The ARDL bounds test confirms a long-run cointegrating relationship among all four variables. Long-run results reveal that healthcare expenditure exerts a significant positive effect on economic growth, consistent with human capital theory. Education expenditure produces a positive but statistically insignificant long-run effect, while financial development yields a significant negative long-run effect, consistent with the "too much finance" hypothesis. The findings provide evidence-based guidance for Malaysian policymakers: ring-fence healthcare expenditure as a long-run growth investment, reform education spending through performance-based budgeting focused on graduate employability and quality outcomes and implement credit quality regulation to redirect private sector credit from speculative and consumption-driven activities toward high-multiplier productive sectors.
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