The optimal government size and economic growth: A comparative study between Malaysia and South Korea.

Inspired by the Look East Policy, Malaysia aims to learn from such a successful Asian country as South Korea in order to break through its upper-middle-income trap. Using the dynamic threshold nonlinear approach, this comparative study is therefore timely to compare and contrast the nonlinear correlation between economic growth and government spending between these two nations. When considering two different measures of government size as the threshold variable, namely government operating/real GDP (GS1) and government investment/real GDP (GS2), the practical findings of this research indicate the presence of a threshold effect between government size and economic growth in the contexts of Malaysia and South Korea.

Nonlinear threshold approach for asymmetric effects of government size on economic growth in an emerging Asian economy: the Malaysian experience.

This paper discovers the asymmetric relation between government size and economic growth in Malaysia, an emerging Asian economy, by utilising a dynamic threshold nonlinear approach. The study finds empiric evidence that the threshold effect linking government size to economic growth in Malaysia exists when two different proxies of government size are set as the threshold variable. On closer inspection, it is found that an inverted U-shaped Armey curve is present when allowing for endogenous government size threshold proxied by government operating/real GDP.