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Jurnal Ekonomi Malaysia

53 (1) 2019 153 – 170

Fiscal Decentralisation and Economic Growth in Malaysia: A Market Preserving Federalism Perspective
Disentralisasi Fiskal dan Pertumbuhan Ekonomi di Malaysia: Perspektif Market Preserving Federalism

Department of Economics
Faculty of Economics and Management
University Putra Malaysia
43400 Serdang Selangor
MALAYSIA

judhiana@upm.edu.my

Victoria Institute for Strategic Economic Studies
Victoria University, 300, Flinders St, Melbourne, 3000 Victoria
AUSTRALIA

bhajan.grewal@vu.edu.au

School of Accounting, College of Business,
RMIT University. 445 Swanston St, Melbourne, 3000, Victoria
AUSTRALIA

abdullahidahir.ahmed@rmit.edu.au

Department of Economics
Faculty of Economics and Management,
University Putra Malaysia
43400, Serdang, Selangor
MALAYSIA

norashidah@upm.edu.my

Abstract

By using fiscal datasets from 1990 to 2010 in Malaysia, a panel Dynamic-OLS (DOLS) is employed to investigate the extent to which fiscal decentralisation can support state level economic growth as proposed in the Market preserving federalism (MPF) theory. Despite having a more centralised federalism system, the result strongly shows that a fiscal decentralisation variable, (i.e. a composite ratio of decentralisation) has significant coefficient and positive relationship with state economic growth. This implies that a certain degree of fiscal decentralisation in Malaysia is able to contribute to states’ economic performance by adopting fiscal decentralisation simultaneously on both dimensions of revenue and expenditure. This validates the view that decentralisation is a multi dimentional measure. The study shows that
Malaysia also would be able to benefit from a system of federalism which empowers state governments to make policies for their jurisdictions and to compete with one another for better services and higher investment. Hence, competition is the mechanism that creates incentives that result from satisfying the MPF conditions and subsequently leading to the achievement of higher state economic performance.

Keywords

federalism; fiscal decentralisation; Market preserving federalism
http://dx.doi.org/10.17576/JEM-2019-5301-13
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Abd. Ghani, , Grewal, , Ahmed, , & Mohamed Nor, (2019). Fiscal Decentralisation and Economic Growth in Malaysia: A Market Preserving Federalism Perspective. Jurnal Ekonomi Malaysia, 53(1), 153–170. http://dx.doi.org/10.17576/JEM-2019-5301-13

@article{abdghani2019fiscal,
  title={Fiscal Decentralisation and Economic Growth in Malaysia: A Market Preserving Federalism Perspective},
  author={Abd. Ghani, Judhiana and Grewal, Bhajan and Ahmed, Abdullahi D. and Mohamed Nor, Norashidah},
  journal={Jurnal Ekonomi Malaysia},
  volume={53},
  number={1},
  pages={153—170},
 

year={2019},
}

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