Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM, Serdang, Selangor, Malaysia
Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM, Serdang, Selangor, Malaysia.
This empirical study intends to examine the behavior of oil price on Malaysian economic growth whether nonlinearity implies. The dynamic models of Linear and Nonlinear Autoregressive Distribution Lags (ARDL and NARDL) are used to estimate the models. The study used annual data over the period of 1975 to 2015. The study used the real Malaysian spot oil price (Miri) as oil price unlike. The results from linear model revealed that oil price positively increase economic growth both in the short-run and the long-run. To achieve our objective, the NARDL estimator was used to detect the impact of positive and negetive changes in oil price. The results reveal that there is nonlinear relation among the variables in the long-run relationship as the evidence of cointegration was found. Increases in oil price boosts economic growth positively while a decrease in oil price is not as indicate insignificant. The error correction term confirms the results as indicate negative, significant and less than 1 percent. That is the speed of adjustment after the oil price shock. The results have important policy implications, exposed that the impacts of oil price changes (positive and negative) are not necessarily equal.