The relationship between economic growth and employee provident fund: an empirical evidence from Malaysia

Over the years, Malaysia has progressively accelerated its economic development, thanks to the adherence to high rates of domestic savings and investment. Of which, the Employees Provident Fund (EPF) is one of the schemes that caters for the private sector workers. Specifically, this paper investigates the relationship between economic growth and EPF investment in Malaysia for the period of 1970 – 2014. The model, which is derived from the Cobb-Douglas production function, is tested by econometric techniques; Johansen cointegration and Granger causality within VECM. While the EPF investment is proven statistically insignificant in the short run, there is evidence of the saving/investment-led-growth hypothesis being the long run phenomenon for Malaysia. In view of the possible over-dependence on investment funds in generalgoing forward, the policy makers are recommended to reinforce the government’s initiative in facilitating more business ventures as means to attract incoming funds, including FDI flows, towards streaming into the country.