Fixed investment, household consumption, and economic growth : a structural vector error correction model (SVECM) study of Malaysia

This paper examines the dynamic linkages between economic growth, fixed investment, and household consumption in Malaysia by using a structural vector error correction model (SVECM) approach. The empirical results revealed that household consumption and fixed investment are only significantly influenced output growth in the short run. This finding tends to support the alternative view of growth hypothesis, namely fixed investment-led growth, and household consumption-led growth in the short run. In the long run, there is no significant effect of fixed investment and household consumption on growth. However, in the long run, there is a permanent effect of economic growth on household consumption and investment. This empirical finding signals that a demand side policy (for example, fiscal and monetary policy) by affecting the household consumption and investment is ineffective to stimulate the economic growth in the long run.