The Dynamic Synergies between Agriculture Output and Economic Growth in Malaysia

Abstract

This paper investigates the dynamic synergies between agriculture sector and economic growth in Malaysia throughout historical economic policy adjustments spanning from 1970 to 2010. From the analysis, the contribution of agriculture sector output to the Malaysian economy has been decreasing despite several agriculture-led economic growth policies that have been implemented, including the very recent New Economic Model (NEM). Specifically, we employ Johansen-Juselius (1990) cointegration test and reveals that agriculture and economic growth were found to be moving together in the long run. Moreover, we examine the direction of causality between agriculture output and economic growth within the vector error-correction model (VECM). The test shows that both agriculture and economic growth have no causality direction at least in the short run but there exist a bi-directional causality movement in the long run. From this empirical testing and policy analysis, we can suggest that policy makers should pay attention to the holistic and sustainable development of agriculture sector into their policy modelling in promoting sustainable economic growth.