Authors: Raza Ali Khan, Mohd. Shahir Liew and Zulkipli Bin Ghazali
Malaysia has been trying to shift toward from developing nation status to developed nation status. Hence it becomes important for the Malaysian government to study and understand the dynamics of inter sectoral linkages in order to obtain positive growth, development to sustain the economic growth momentum and to achieve higher level of socio-economic development. The objective of this study is to investigate the causal relationship and make a comparative analysis between the two key sectors (construction and agriculture) of the Malaysian economy. A descriptive statistics is used for comparison and sophisticated econometric techniques. Granger causality test and the vector auto regression (VAR) technique used to determine the causality link between the two sectors and measure the effect of changes in the output of one sector on the output of another sector. Results of empirical analysis exhibit that there is strong correlation and bi-directional causal relationship between construction and agriculture sectors of Malaysia. Agriculture sector takes only 3 quarters to respond to the impact of shock emanating from the construction industry while the construction sector responding time is 13 quarters against the shock of agriculture sector.
Keywords: causal relationship, sectoral linkages, vector auto regression