What causes economic growth in Malaysia: exports or imports ?

Most of previous researches have only focused on the effect of export expansion on economic growth while ignoring the potential of import in developing economic growth. This study makes an attempt to examine the relationship between trade and economic growth in Malaysia with emphasis on both the role of exports and imports. This study treats exports and imports separately to allow for the possibility that their influence toward economic growth is asymmetric and adopts recent advances in time series modeling. This study used Granger causality test and impulse response functions to examine whether growth in trade stimulates economic growth. It is important to examine the linkage between trade and economic growth for Malaysia in order to provide evidence whether rapid economic growth in the region is driven by trade or whether there is reciprocal impact between growth and trade. The results tend to suggest that the singular focus of past studies on exports as engine of growth may be misleading. The results confirm the bidirectional long run relationships between the economic growth and exports, economic growth and imports and exports and imports. From a policy point of view, investigating the causal links between trade and economic growth generates important implications for the development strategies of developing countries. If exports drive economic growth, policy should promote exports, and likewise for imports.