Page 221 - Contributed Paper Session (CPS) - Volume 8

CPS2256 Norzarita Samsudin
Labour Forces have positive impact on GDP growth. However, FDI is the only
variable that contributes significantly to GDP growth in Malaysia.

3. Methodology
This study used econometric analysis i.e. Vector Autoregressive (VAR) to
examine the relationship between Malaysia sales value of retail trade and GDP
at constant price. Secondary data is used that is quarterly data from quarter
one 2010 to quarter three 2018. Because of VAR models represent the
correlations among a set of variables, they are often used to analyze certain
aspects of the relationships between the variables of interest (Rossi, 2018). In
this study, after testing the variables involved, “Unrestricted VAR” model is
suitable to be used to examine short run relationship between Malaysia real
GDP and sales value of retail trade. In this study it was found that Malaysia
Real GDP has seasonality. Hence the seasonality is removed before conducting
relationship study. The general model of “Unrestricted VAR is as follow:

Where:

Y = real GDP of Malaysia
X = Malaysia sales
value of retail trade
b and = constant
term t = time
trend ε = error
term.

Stationarity test is conducted in order to select appropriate VAR model
where Augmented Dickey– Fuller test (ADF) is applied in this study. It is found
that the studied variables are not stationary at level. Real GDP and sales value
of retail trade are stationary at 1st difference. Hence, Johansen Cointegration
Test is performed to examine long run relationship. Granger causality test is
used to investigate the causality between real GDP and sales value of retail
trade. This is to determine whether Malaysia real GDP can influence the sales
value of retail trade, or sales value of retail trade can cause the Malaysia GDP
in the short run.
In this study also, Impulse Response Functions (IRF) and Variance
Decomposition are used to examine future reaction of the studied variables.
IRF identify the responsiveness of the dependent variable (endogenous

210 | I S I W S C 2 0 1 9