EFFECT OF ECONOMIC FACTORS ON THE AUTOMOTIVE INDUSTRY IN MALAYSIA

Abstract

Transportation plays a significant role and is crucial for developing the country’s economy. The automotive industry has hugely contributed to Malaysia’s economy as a major factor in the economy’s growth. The study analyses the effect of economic factors, Gross Domestic Product (GDP), inflation, and unemployment on long-term and short-term Automotive Sales (AS) using secondary time series data from 1990 to 2020 collected from Macro Trends and the Malaysian Automotive Association (MAA). The Autoregressive Distribute Lag model (ARDL) forecasts and disentangles long- and short-run relationships. ARDL model acquired the Error Correction Model (ECM) to estimate the short run. The results indicated that a long-run association does not exist between AS and economic variables. However, there is a short-run relationship between GDP with a positive effect and Inflation Rate (IR) and Unemployment Rate (UR) with a negative effect. Based on the findings, attention should be paid to reducing the negative impact of IR and UR, not to weaken the production and demand of the automotive industry. In future research, a more thorough analysis could be carried out in each vehicle category, such as passenger vehicles, industry-used vehicles, etc.