Assessment of Government Agriculture and Rural Development Expenditure Impact on the Malaysia’s Agriculture Production

Abstract

This study is focused on determination of the important factors that have affected the agriculture production in Malaysia. The data on interest rate (IR) and government agriculture expenditure (GE) were collected from Bank Negara Malaysia (BNM) monthly bulletin statistic. Besides that, the number of labor use in agriculture sector (LA) was collected from the World Development Indicator (WDI). All data collected were based on the time series (annually) from 1983 to 2016. In this study, the Augmented Dickey Fuller (ADF) and Philips Perron (PP) tests are used to determine the stationary of the time series data and the overall findings showed that the time series data are stationary at order one or I(1). In this study, the result of Engle Granger (EG) co-integration test was used and stated that all the factors were co-integrated with the agriculture productivity. However, the GE² and interest rate (IR) are the only factors that showed a negative relationship. In the long run, all the factors are significantly affecting agricultural productivity, while the interest rate is insignificant to determine the agriculture production. Furthermore, the Error Correction Mechanism (ECM) model showed that all the factors are significantly influencing the agricultural production in Malaysia except the interest rate. In the nutshell, this study suggests that the policy maker  should take the precautions in the budget spending in agriculture sector, which should not exceed the threshold spending of RM3,057 million.