Authors: Raza Ali Khan, Zulkipili Bin Ghazali, Mohd. Shahir Liew
Malaysia has been trying to shift toward from developing nation status to developed nation status. Hence it becomes important for Malaysian government to study and understand the dynamics of inter sectoral linkages in order to obtain positive growth, develop to sustain the economic growth momentum and to achieve higher level of socio economic development. The objective of this study is to investigate the linkage and causal relationship between the two key sectors (construction and agriculture) of Malaysian economy by using sophisticated econometric techniques. Granger causality test and the vector auto regression (VAR) technique is used to determine the causality between the two sectors and measure the effect of changes in output of one sector on the output of other 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 quarter to respond to the impact of shock emanating from construction industry while construction sector responding time is 13 quarter against the shock of agriculture sector.
Keywords: sectoral linkages, causal relationship, vector auto regression