Political factor and external debt: case in Malaysia

• Main Authors: Chen, Fan Qin, Chia, Kay Leng, Chung, Xhing Yie, Tou, Jiet Yee, Woon, Pui San
• Format: Final Year Project / Dissertation / Thesis
• Published: 2019
• Subjects: HG Finance
• Online Access: http://eprints.utar.edu.my/3531/1/fyp_FN_2019_CFQ.pdf; http://eprints.utar.edu.my/3531/
• Institution: Universiti Tunku Abdul Rahman

Malaysia is similar to other country which it uses foreign loan to finance the developmental project. This study is mainly to investigate the determinants that will affect Malaysia’s external debt. The determinants that used in this study is all macroeconomic factors which included budget deficit, trade openness, terms of trade, exchange rate, gross domestic product (GDP). Except those five macroeconomic factors, in this study we also included regime type as our interaction term. Autoregressive Distributed Lag (ARDL) testing is used to determine the effect of the macroeconomic factors and interaction term on the external debt in Malaysia in both long run and short run relationship. After carried out the econometric testing, it found out that all the factors are significant to the level of external debt in Malaysia. Gross product domestic is found out to be negatively affecting the level of external debt in long run relationship. It examined that exchange rate is positively related to external debt in short run relationship. While, budget deficit and external debt is negatively related in short run as well. Besides, the regime type is negatively related to gross product domestic, exchange rate, budget deficit and trade openness. The term of trade is found out to be positively related to regime type.