1. VIGNES GOPAL KRISHNA
PHD STUDENT
UNIVERSITY OF MALAYA, KUALA LUMPUR
vignesgopal@yahoo.com
Presentation prepared for the 2nd International Conference on Business
and Economics at Tibet International Grand Hotel, Lhasa, Tibet, China
from 2nd to 4th June 2011.

2. Structure of Malaysian economy
“Backward Thinking”
Commodity
based economy
“Forward Thinking”
Mono-
Dimensional
Approach
Knowledge and
Technology based
economy
Multi-
Dimensional
Approach

3. Countries Ranking (2009-2010) Ranking (2010-
2011)
Malaysia 24 26
Singapore 3 3
Brunei
Darussalam
32 28
Cambodia 110 109
Vietnam 75 59
Indonesia 54 44
Philippines 87 85
Thailand 36 38
Global Competitiveness Ranking
(Overall Ranking)

4. Countries Global Competitiveness Ranking 2010/2011
Institutions Infrastructure Macroeconomic
environment
Health and
primary
education
Higher
education
and
Training
Goods
market
efficiency
Malaysia 42 30 41 34 49 27
Singapore 1 5 33 3 5 1
Thailand 64 35 46 80 59 41
Cambodia 94 114 116 110 122 81
Brunei
Darussalam
36 52 1 32 64 78
Indonesia 61 82 35 62 66 49
Vietnam 74 83 85 65 93 60
Philippines 125 104 68 90 73 97

5. Mercantilism Physiocratic
Schools of economic thought
Classical
Neoclassical
Keynesian
Trade
balance
Time
Surplus
Deficit
Import
substitution
policy
Tableau
Economique
Interest
rate
r0
S0 Io
S
I

6. Reviews on Selected LiteraturesScholars Country/countries Sample of
years
Variables Econometrics methodologies Main Findings
A) The Dynamics of Savings and Investments
Narayan (2005) Japan 1960-1999 Gross national
investment (% of
gdp) & Gross
national saving (%
of gdp)
a) Unit root test (Zivot and
Andrews (1992) sequential
trend break model).
b) Cointegration test (ARDL
test) c) Granger causality test
LR test) (Boostrap simulation
approach)
a) Saving and investment were integrated
of order 1.
b) Saving and Investment were
cointegrated. c) Positive relationship
between saving and investment. d) There
was a bidirectional causality between
saving and investment.
Seshaiah and
Vuyuri (2005)
India 1970-2002 Gross savings and
investments
a) Unit root test (ADF & PP)
b) Johansen cointegration test
c) Granger causality test
d) Variance Decomposition
a) Saving and investment were integrated
of order 1.
b) There was a long run relationship
between S & I.
C) Positive connectivity between S & I

7. Vita and
Abbott
(2002)
1946 -
2001
Ratio of
gross
domestic
investment
to GDP, &
Ratio of
gross
national
saving to
GDP.
Unit root test (ADF
& PP test)
ARDL Bounds
testing
Ordinary Least
Squares (OLS)
a) There was a cointegration
between saving and
investment in US (1971 –
2001).
b) Positive connectivity
between saving and
investment in US (1946 -
2001).
c) Correlation between
Saving and investment was
weakened after 1971.
Ang (2007) Malaysia 1965-
2003
Ratio of
gross
domestic
investment
to GDP, &
Ratio of
gross
national
saving to
GDP
test (ADF,PP, KPSS)
b) Cointegration test
(ARDL).
c) Conditional ECM.
a) Positive relationship
between Saving and
investment.

9. Keynesian J-W – Hicks
Hansen Approach
Physiocratic School of
economic thought
Asymmetric information
Saving-Investment
nexus
Mercantilism School of
Economic thought
Evolutionary Economics
Meso Trajectory Phases of
Innovation
Public Private
Partnership projects
Animal Spirits
Origination
Diffusion
Retention
Creative
Destruction
Sources : Author, Dopfer et al. (2004), and Nelson (2008)
ANALYTICAL FRAMEWORK
Metcalfe’s Law
Flow of
information
Flow of
information

10. Facilitation
Fund (RM 20 Billion)
Private
investment (12.5
Billion)
Animal Spirits
Flow of
information
Construction of
Highways
Construction of 300 megawatt
Combined Cycle Gas Power Plant
Development of land in Sungai
Buloh
Innovation in
projects
Innovation in
system
Innovation in
products
10TH Malaysian Plan
Sources : Author and 10th Malaysian Plan Report
Meso Trajectory phases
of Innovation
HSBB
Trust mark

11. Empirical modelsKeynesian Income Identity Approach (Open Economy Framework)
Y= C+ I + G + (X-M) (1)
Keynesian J-W Hicks Hansen Synthesis
I + G + X = S + T + M (2)
SP = YD - C (3)
SG = T – G (4)
SN = Y-C-G (5)
SN = I + (X –M) (6)
I = ST - (X – M) (7)
SN = I + SIT
Empirical models of the study were derived from Equation (7),
LRGFCFt = β0 + β 1 LRGDSt + β2LREXt + εt ……….(8)
LRGFCFt = β0 + β1 RTBt + + εt …………………(9)
World Development Indicators and Author’s
computation

12. ECONOMETRICS METHODOLOGIES
Country Variables Unit root test
ADF
H0 : A variable has
a unit root
H1 : A variable has
no unit root
Middle income country
Malaysia LRGFCF -1.37(1)
LRGDS -0.96(2)
LREX -0.08(0)
RGFCF -0.88(0)
RTB -0.78(0)
Country Variables Unit root test
ADF
H0 : A variable has a
unit root
H1 : A variable has no
unit root
Middle income country
Malaysia LRGFCFM -4.84(0)**
LRGDSM -7.57(1)**
LREXM -5.30(0)**
RGFCF -8.24(0)**
RTB -5.14(0)**
LEVEL FORM FIRST DIFFERENCE FORM
JOHANSEN COINTEGRATION TEST

13. Country Variables Null hypothesis Alternative
hypothesis
Trace test Maximum eigenvalue
Middle income country
Malaysia LRGFCFM,
LRGDSM &
REXM
r = 0 r = 1 43.64** (29.80) 22.04** [21.03]
r = 1 r = 2 11.60 (15.49) 11.50 [14.26]
r = 2 r = 3 0.10 (3.84) 0.10 [3.84]
RGFCF, & RTB
r=0 r=1 22.32** (15.49) 22.22** [14.26]
r=1 r=2 0.11 (3.84) 0.11 [3.84]
JOHANSEN COINTEGRATION TEST
LR Relationship

14. Country Intercept/variables Coefficients Test-statistics Degree of elasticity
Middle income country
Malaysia Intercept -1.25 -
LRGDSMt-1 + 1.49 -8.51 elastic , Significant
LREXMt-1 -0.39 2.52 Inelastic , significant
Country Intercept/variables Coefficients Test-statistics Degree of significance
Middle income country
Malaysia Intercept +32595.23 -
RTBt-1 +1.03** -6.16 Significant (5%)
I = ST - (X – M)
LONG RUN RESULTS

15. Country Intercept/variables Coefficients Test-statistics
Middle income country
Malaysia Intercept 0.03 0.98
Δ LRGFCFMt-1 0.37** 2.22
Δ LRGDSMt-1 0.05 0.32
Δ LREXMt-1 0.13 0.33
ECTt-1 - -
SHORT RUN RESULTS
Country Intercept/variables Coefficients Test-statistics
Middle income country
Malaysia Intercept -1891.75 -0.66
Δ RGFCFt-1 1.10** 2.20
Δ RTBt-1 0.81 1.78
ECTt-1 -0.19** -2.68

16. Graphical Approach: Saving,
Investment and Trade Openness
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
60 65 70 75 80 85 90 95 00 05
RGFCF RGDS REX
Malaysia
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1970 1975 1980 1985 1990 1995 2000 2005
RGFCF RGDS REX
Algeria

17. 0
4,000,000
8,000,000
12,000,000
16,000,000
20,000,000
24,000,000
60 65 70 75 80 85 90 95 00 05
RGFCF RGDS REX
Hungary
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1980 1985 1990 1995 2000 2005
RGFCF RGDS REX
Kenya

18. Generalized Variance Decompositions
(Model 1)
Period ∆ LRGFCF ∆ LRGDS ∆ LREX
1
100.0000 0.000000 0.000000
2
98.16881 1.758958 0.072229
3
98.13887 1.491211 0.369924
4
98.31523 1.173755 0.511015
5
98.49340 1.028999 0.477600
6
98.62216 0.877243 0.500594
7
98.69841 0.762802 0.538786
8
98.78334 0.672468 0.544196
9
98.84756 0.604147 0.548290
10
98.89427 0.546303 0.559424

19. Generalized Variance
Decompositions (Model 2)
Period ∆ RGFCF ∆ RTB
1 100.0000 0.000000
2 88.60620 11.39380
3 87.26457 12.73543
4 86.92776 13.07224
5 86.87550 13.12450
6 86.75379 13.24621
7 86.61338 13.38662
8 86.48568 13.51432
9 86.35900 13.64100
10 86.23125 13.76875

20. Summing Up
 Positive and normative analysis should be
incorporated in the discussion on the S-I nexus.
 The transition from simple approach to complex
approach may direct the way to elaborate the gaps
between Saving and Investment in details.
 Keynesian- evolutionary economics synthesis may
enhance the status of nations.

21. References
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economy, and why it matters for global capitalism. United States: Princeton University
Press.
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Dopfer, K., Foster, J. & Potts, J. (2004). Micro-meso-macro. Journal of Evolutionary
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Lee, K.C., Pesaran, M.H. & Pierse, R.G. (1992) Persistence of shocks and its sources in
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Schwartz, H. (2010). Does Akerlof and Shiller’s Animal Spirits provide a helpful new
approach for macroeconomics?. The Journal of Socio-Economics, 39, 150-154.

22. Sinha, D.(2002). Saving-investment relationships for Japan and other Asian countries. Japan
and the World Economy, 14, 1-23.
Vita, G.D. & Abott, A.(2002). Are saving and investment cointegrated? An ARDL bounds
testing approach. Economics Letters, 77, 293-299.
Seshaiah, S. V. & Vuyuri, S.(2005). Savings and investment in India: A cointegration
Approach. Applied Econometrics and International Development, 5-1, 25-44.