Fiscal Decentralisation and Economic Growth in Malaysia: A Market Preserving Federalism Perspective

Fiscal Decentralisation and Economic Growth in Malaysia: A Market Preserving Federalism Perspective. Jurnal Ekonomi Malaysia, 53 (1). pp. 153-170. ISSN 2716 – 6058 (2019)


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.

Item Type: Article
Keywords: fiscal decentralisation, Market preserving federalism, federalism
Taxonomy: By Subject > Business & Management > Economics
Local Content Hub: Subjects > Business & Management
Depositing User: Eza Eliana Abdul Wahid
Date Deposited: 06 Oct 2021 23:42
Last Modified: 06 Oct 2021 23:42
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