The Real Effect of Government Debt: Evidence from the Malaysian Economy

The results demonstrate that there is a long-run relationship between federal government debt and economic growth in Malaysia. In addition, our findings are of great interest since there is evidence of a non-linear relationship between the federal government debt and economic growth, which suggests the optimal level of debt that the government should hold. Hence, the accumulation of federal government debt is positively associated with Malaysia's economic growth up to an optimal level. While an additional increase in federal government debt beyond the optimal level has inversely contributed to the Malaysian economy.