Ijms Vol 19 No (1) June 2012

ISSN 2232-1608
Vol. 19, No. 1 June, 2012
ARTICLES
The Future of Monetary Reform and
the Real Economy: A Problem of Trade
Versus Interest
Masudul Alam Choudhury &

Sofyan Syafri Harahap
1-35
The Eects of Interest Rates Volatility on

Stock Market Returns in Malaysia and
Singapore
Karen Tan, Mohamed Hisham

Yahya & Bani Arin Amin
Nordin
37-51
Social Capital and Educational Attainment

Among Rural Community in Malaysia
Roslan Abdul Hakim, Russayani

Ismail & Nor Azam Abdul Razak
53-71
Malaysia Household Wealth Distribution:

Current Evidence and Future Prospects
Muhammed Abdul Khalid
73-86
Productivity Improvement in the

Utilization of Domestic and Imported
Inputs in Resource and Non-ResourceBased Industries: 19832005
Noorasiah Sulaiman, Zakariah

Abdul Rashid & Khalid Abdul
Hamid
Eects of Susceptibility to Interpersonal

Influence on Clothing Benefits Sought
Syadiyah Abdul Shukor
115-133
Predicting Work-Family and Family-Work

Conflict from Work and Family Domain:
A Longitudinal Study
Zaiton Hassan & Hana Hamidi
135-150
Genuine Savings for Malaysia: What

Does it Tell?
Jamal Othman, Roby Falatehan

& Yaghoob Jafari
151-174
Hubungan antara Kerja Berpasukan

dengan Kepuasan Kerja Ketua Panitia
Sekolah Menengah
Arsaythamby Veloo & Kiew

Hwee Bin
175-191
Pelaburan
Langsung
Asing
dan
Perkembangan Pelancongan: Kointegrasi
dan Ujian Penyebab Granger di Sepuluh
Destinasi Utama Pelancongan
Norlida Hanim Mohd Salleh,

Redzuan Othman & Tamat
Sarmidi
193-210
87-114
ISSN 2232-1608
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LIST OF CONTRIBUTORS/SENARAI PENYUMBANG

1.
Masudul Alam Choudhury

Department of Economics & Finance
College of Commerce & Economics
Sultan Qaboos University
P. O. Box 50, Muscat 123
Sultanate of Oman
E-mail: masudc@squ.edu.om
2.
Sofyan Syafri Harahap

Trisakti University
Jakarta, Indonesia
E-mail:
3.
Karen Tan
Faculty of Economics and Management
Universiti Putra Malaysia
43400 UPM, Serdang
Selangor Darul Ehsan
E-mail: karentan26@hotmail.com
4.
Mohamed Hisham Yahya

43400 UPM, Serdang
E-mail: mohdhisham@putra.upm.edu.my
5.
Bani Arin Amin Nordin

43400 UPM, Serdang
E-mail: bany@putra.upm.edu.my
6.
Roslan Abdul Hakim

UUM College of Business
Bangunan Ekonomi/Pelancongan
06010 UUM Sintok
Kedah Darul Aman
E-mail: ahroslan@uum.edu.my
7.
Russayani Ismail
06010 UUM Sintok
Kedah Darul Aman
E-mail: russ1140@uum.edu.my
8.
Nor Azam Abdul Razak

06010 UUM Sintok
Kedah Darul Aman
E-mail: azam@uum.edu.my
9.
Muhammed Abdul Khalid

Institute of Malaysian and International Studies
Universiti Kebangsaan Malaysia
43600 UKM, Bangi
E-mail: muhammed.abdulkhalid@gmail.com
10.
Noorasiah Sulaiman
School of Economics
43600 UKM, Bangi
E-mail: rasiahs@ukm.my
11.
Zakariah Abdul Rashid

Malaysian Institute of Economic Research
Level 2, Podium City Point
Kompleks Dayabumi
Jln. Sultan Hishamuddin
50050 Kuala Lumpur
E-mail: zakariah@mier.po.my
12.
Khalid Abdul Hamid

Level 2, Podium City Point
Kompleks Dayabumi
Jln. Sultan Hishamuddin

50050 Kuala Lumpur
E-mail: khalidintra62@yahoo.com.my
13.
Shadiyah Abdul Shukor

Faculty of Economics and Muamalat
Islamic Science University of Malaysia
Bandar Baru Nilai
71800 Nilai
Negeri Sembilan Darul Khusus
E-mail: syadiyahas@usim.edu.my
14.
Zaiton Hassan
Faculty of Cognitive Sciences and Human Development
Universiti Malaysia Sarawak
94300 Kota Samarahan
Sarawak
E-mail: ummiiyas@yahoo.com
15.
Hana Hamidi
94300 Kota Samarahan
Sarawak
E-mail: Hhana@fcs.unimas.edu.my
16.
Jamal Othman
43600 UKM, Bangi
E-mail: j_othman@yahoo.com
17.
Roby Falatehan
43600 UKM, Bangi
E-mail:
18.
Yaghoob Jafari
43600 UKM, Bangi

E-mail: yaghoob.jafari@gmail.com
19.
Arsaythamby a/l Veloo

UUM College of Arts and Sciences
06010 UUM Sintok
Kedah Darul Aman
E-mail: arsay@uum.edu.my
20.
Kiew Hwee Bin

06010 UUM Sintok
Kedah Darul Aman
E-mail:
21.
Norlida Hanim Mohd Salleh

Institut Kajian Ekosistem Marine
43600 UKM, Bangi
E-mail: norlidahanim@gmail.com
22.
Redzuan Othman
Institut Kajian Asia Barat
43600 UKM, Bangi
E-mail: redzuano@gmail.com
23.
Tamat Sarmidi
43600 UKM, Bangi
E-mail: tamat@ukm.my
IJMS 19 (1), 135 (2012)
THE FUTURE OF MONETARY REFORM AND

THE REAL ECONOMY: A PROBLEM OF TRADE
VERSUS INTEREST
MASUDUL ALAM CHOUDHURY
College of Commerce and Economics
Sultan Qaboos University, Muscat Sultanate of Oman
SOFYAN SYAFRI HARAHAP
Director of Postgraduate Program in Islamic Economics and Finance
Trisakti University, Indonesia
Abstract
The prologue is our starting premise.
The Quran (2: 275) declares, As for those who devour interest, they behave
as the one whom Satan has confounded with his touch. Seized in this state
they say: Trade is but a kind of interest, even though Allah has made trade
lawful, and interest unlawful.
Keynes (1930, p. 368) picked up such wisdom of the inverse relationship
between trade and interest and wrote, The strenuous purposeful moneymakers may carry all of us along with them into the lap of economic
abundance. But it will be those peoples, who can keep alive, and cultivate
into a fuller perfection, the art of life itself and do not sell themselves for the
means of life, who will be able to enjoy the abundance when it comes.
Such are the messages of moral highness and wisdom picked up in this paper.
The fundamental point here is to establish the fact that the only way of phasing
out interest rate from Islamic activities is to understand and implement the
formalism of the inverse relationship that permanently exists between trade
in the good things of life and the rate of interest as the impediment to the free
flow of resources into such tradable activities.
The central bank and commercial banks and financial intermediaries as
practitioners must understand this organic relational concept of intellection
in relation to money and the real economy. The monetary system and the
real economy with the financial instruments between would thus be shown
to formalize the intellection paradigm which indeed is a truly scientific
revolution. The result is replacement of the fractional reserve requirement
1
IJMS 19 (1), 135 (2012)

monetary system by the 100 per cent reserve requirement monetary system
backed by the gold standard. Likewise, the organic relationships of such a
monetary arrangement including its monetary policy and transmission
mechanism would structurally change the nature of markets and its
institutional relations and individual preferences. The result at the end will
be a phased down interest rate regime into a trade-related one by the rise of
the tradable relationships that are generated.
The foundational methodology that enters this kind of organically relational
worldview with the episteme of unity of knowledge (the divine law in Islam)
provides the functional ontology of the socially and morally constructed
money, production and real economy circular causation. It models the
legitimacy of trade as the resource mobilization instrument, while rejecting
interest as the permanent impediment of resource mobilization.
Keywords: Monetary economics, Islamic economics and finance, Islamic
political economy and world-system, social economics; ethics and economics.
Introduction
Often in recent economic and financial experience it has been proven
that a low rate of interest by bank regulation, macroeconomic policy
objectives, and market forces have ended in fiasco in stabilizing the
economy. The low real rate of interest during the 1960s in the face of
low nominal rate of interest fueled the subsequent increase in inflation
and resulted in stagflationary economic periods (Siven, 1978). The
recent macroeconomic policy to drive the nominal rate of interest to
zero in Japan, as an example, resulted in non-performing loans that
were abundantly provided to borrowers. Most starkly true, the subprime mortgage rates on real estate in southern United States resulted
in an aggressive spirit of borrowing to fuel the housing boom that
turned sour.1 The inference drawn is that a low or zero rate of interest
is a necessary but not a sucient condition for the road to economic
bliss. Structural changes in the relationships between money, finance
and market exchange must be established simultaneously with
reduction in the rate of interest.
Objective
Our objective in this paper is to explain the necessary and sucient
conditions of economic and social bliss that is reached by the
endogenous interaction between money, finance and the real economy.
2
IJMS 19 (1), 135 (2012)

The idea of endogenous relations is conveyed by the systemic
interrelations between entities and variables of the socioeconomic
problem under study. These internal dynamics generate causality and
learning by interaction. The concept is similar to what Paul Krugman
termed as self-governing equilibrium resulting in self-organized
behaviour. The change occurs simultaneously with the phasing down
of interest rates. This kind of total change is also tantamount to the
pursuit of endogenous interrelationships between the central bank,
the commercial banks and the market economy exchanging in the
good things of life (Hayat tayyibah in the Quran) according to Islamic
law (sharia).
The explanation of these kinds of changes is carried out in reference
to a fundamental phenomenological model of unity of knowledge,
upon which the Islamic world-system governing everything
permanently and indispensably stands. This is the epistemology of
unity of knowledge and being (existence) (Tawhid), exemplifying the
precept of the oneness of God, as this precept creates and governs the
world-system. Within this kind of learning and unified world-system
we study the endogenous relationships of pairing in unity between
the economic and financial domains as mentioned above in respect of
money, finance and the real economy. This methodological content is
presented in the appendix.
Zero Rate of Interest: A Necessary but not Sucient Instrument for
an Islamic Economy
In Malaysia for instance, a recent programme towards zero-inflation
rate (cipher-inflasi) resulted in a mismatch between the subsequently
high rates of interest and the zero rate of inflation (mid-nineties).
When the Southeast Asia financial crisis hit Malaysia (mid-1990s)
high interest rates were used as a macroeconomic monetary policy
to invite foreign capital to shore up the declining exchange rate.
But the relationship between interest rates and exchange rates
remained volatile (Choudhury, 1999), suggesting that there is no
way of stabilizing the exchange rates and inflation just by using the
instrument of high rates of interest. Evidence does not support this.
Malaysias experience with Islamic funds has soured in regards to their
performance, for example the experience with the now diminishing
mudaraba (profit-sharing) and musharaka (equity participation) forms
of financing. Islamic banks and finance companies have withdrawn
almost completely from these principal Islamic financial instruments.
3
IJMS 19 (1), 135 (2012)

These instruments are replaced by secondary financial instruments, all
of which are subject to sharia concerns (Choudhury, 2008a). Likewise,
despite earnest eorts to promote Islamic financing and profitability
in the face of interest-free financing of projects and investments,
Islamic banks in Malaysia could not herald even a distinct prospect
for the well-being of the ummah, the conscious world nation of Islam,
in the field of Islamic networked flow and organization of institutions
for resource sharing (trade). The assertion is borne out by the fact
that Islamic banks and development planning in Malaysia never
accounted for a clear direction of Islamic financing there towards
ameliorating either her own broader Islamic global picture or the
momentum of trade, development and related policy instrumentation
for the Muslim bloc. The Islamic Development Bank Annual Reports
for a long time now bring these out on the basis of communal trade
statistics.
The current lure with sukuk (bonds that revolve around the principal
financing instruments of mudaraba and musharaka and the market of sale
of musharaka-linked bonds in real assets to the private sector to finance
mega projects, have ended up in deep sharia concerns (Usmani, see
internet website). Sukuk financing problems arise from the sale of debt
with interest to private outlets. The sukuk holders can then proportion
this equity instrument between the government and private businesses
through public shareholding. Consequently, the debt coverage in
such projects passes on the debt as an intergenerational burden to
debtor companies. An alternative would be for such companies to
engage in debt-equity swaps (Krugman, 1989; Blackwell & Nocera,
1989; Choudhury, 1989). Debt-equity swaps involve large investors to
retire the debt or a part of it for an indebted country by paying it out
in these proportions (i.e. investing to buy the debt). In exchange, the
debt-ameliorated country treats such an investment as an equity swap
for the debt retired. Debt-equity swaps can be managed eectively in
the case of equity-participation (musharaka).
The debt overhang and the allowance for financing debt in the
private sector is thus at best extended over time, rather than being a
comprehensive financing mode that can be instituted for phasing out
the interest rate regime caused by debt overhang. The goal of financing
interest-bearing, debt-ridden projects by interest-free financing
instruments therefore does not cure the interest-rate enigma. Thereby,
the true impact of financing by Islamic participatory instruments is
not reached, even when the interest-free goal is targeted to reach a
given level of ecacy. Yet in the name of interest-free financing as
4
IJMS 19 (1), 135 (2012)

the focus of Islamic finance, Islamic banks and finance companies,
Muslim governments and large businesses and projects are raising
the flag of sukuk (Gassner, 2008; Business Islamica, 2008).
Capitalization of Income flows and the Rate of Interest
From the history of western economic thought we learn about
alternatives to interest rates in asset valuation. Sraa and Keynes
referred to one such alternative interest rate as the own rate of interest
(Sraa, 1932; Donzelli, 2004). Likewise, we note the arguments in
support of the Austrian concept of money and interest rates (Wicksell,
1934).2
The first of the above-mentioned issues indicates that traditional
economic theory, like the ones claiming the concept of own rate of
interest, equated the rate of interest with the marginal productivity
of capital or the marginal eciency of investment. Wicksells problem
points out how the rate of interest is equivalently treated as a discount
factor to evaluate capital-flow over time. Such notions have been
used by Islamic economics and finance to erect their so-called rateof-return concept according to the marginal productivity theory and
the use of asset valuation based on discount-rate formulas. Islamic
banks have adopted these rules thoroughly; Islamic gurus support it
(Vogel & Hayes, 1998).
One can also refer to the continued practice of such a time-value-ofmoney discounting mechanism now being carried out in the Islamic
Development Bank and all Islamic banks around the world. This also
confirms the of a survey of research departments and directors of the
Islamic banks in Indonesia that was carried out by the author (mimeo.
Islamic economics and finance: An epistemological inquiry, funded
at the Sultan Qaboos University, College of Commerce and Economics,
2009).
The notion of a low interest rate or phased-down interest rate in
economic and financial arrangements has prevailed in the literature.
But the concept of how the rate of interest emerges in the economy,
and how it can be phased out from this system, has not matured
either in the mainstream literature and practice or within the theory
and practice of Islamic economics and finance. The latter area thus
remains inextricably submerged in mainstream academic thinking
relating to money, interest rate and the real economy relations. The
result of this intellectual debility is reflected in a flawed conception
5
IJMS 19 (1), 135 (2012)

that is transmitted into the Islamic rules concerning worldly matters
(Fiqh muamalat), Islamic financial institutions, and the conceptions
underlying the academe of Islamic economics and finance.
The net result of these developments in the history of economic
thought in respect of the theory of interest and capital accumulation,
and which Islamic economics and finance have emulated, is this:
Capital accumulation embodies savings arising from abstemiousness
in present consumption for attaining maximum intertemporal
consumer utility. This idea is embodied in the classical theory of
intertemporal savings and consumption contributed by Ramsay
(1928). The capitalized value of all future yields from present
abstemiousness in consumption is obtained by a discounting method
that invariably imputes the discount rate as the shadow rate of interest
for capitalizing future uncertain yields.
The Position of Islamic Economics and Finance in Respect of
Capitalization of Assets with Interest-free Instruments
Islamic economic and finance gurus have adopted a time-value of
money discounting approach in asset valuation. They thus failed to
understand the interest-rate implications of the discounting approach.
The result in asset valuation is that a future market, which remains
undetermined, would be capitalized at a rate either less or greater
than the expected rate of return on the stream of future income flows.
Especially, in such a case of discount-rate indeterminacy, microenterprises have diculty in tying up commitment to a mark-up that
determines the investors and shareholders dividends and profits.
Microenterprises bear the burden of the excessive cost of capital. The
problem arises when large shareholders aim at discounting their risk
by taking a larger share of the profits in joint venture. This leaves
smaller residual shares and dividends for the small borrowers and
participants in Islamic funds. Microenterprises thus find it costly to
refinance their assets by means of the lower share of total profits of
joint ventures.
The same result can swing in favour of micro-enterprises at the expense
of shareholders when an under-valuation of the intergenerational
flow of projected returns takes place. In such a case, the question is
this: Can the investor be risk-avert and divert potential investments
into risk-free alternatives, such as short-term trade using the murabaha
(mark-up) financing instrument? None of these alternatives comes to
6
IJMS 19 (1), 135 (2012)

the benefit of socioeconomic development of the community, and
beyond of the ummah. Indeed, a prevalent problem of Islamic banks is
either a lack of investments or an over-subscription of shareholders
capital. These results are reflected in the variable, financing/
deposit ratio, which is found to move away on either side from the
expected value of unity (Choudhury, 2009) in Islamic banks. Islamic
banks in Indonesia show such financing problems in their annual
reports (Bank Muamalat Annual Report, 2007; Bank Mandiri Annual
Report, 2006).
Consequently, although interest-free financing has been promoted
by Islamic banks, yet the method towards realizing this goal has not
been well-defined in terms of investment, liquidity problem, asset
valuation and socioeconomic development of the ummah. Besides,
it was pointed out above that secondary financing instruments have
been used in place of the principal Islamic financing instruments to
argue in favour of operations in interest-free financing. Yet there are
looming sharia problems relating to interest rates in these secondary
financing instruments. Two of these problems are first, the absence
of the idea of pooled funds made by combining individual types
of financing modes. The sharia gurus have not looked into this
possibility. The second one is the dierence of the oft-used shariacompliance jargon from the great purpose of the sharia, the maqasid
as-sharia (Mufeedh Choudhury, 2009).
Both of these approaches in asset valuation and financing run into
the same kinds of methodological problems mentioned above. They
generate ineective socioeconomic development eects. A clear
example is the almost negligible dierence between Islamic banks
and conventional banks in respect of such Islamic and conventional
modes of financing. This situation is found to be empirically true of
Islamic financing everywhere (Choudhury, 2008a).
The Money, Finance and Real Economy Relationships in an
Interest-Free Regime of Socioeconomic Change
Islamic economists argue on behalf of establishing an interest-free
regime of socioeconomic change by retaining the existing fractional
monetary reserve system, despite introducing the compelling need for
delivering social justice (Chapra, 1985). The arguments, prescriptions
and implementation of such an approach through interest-free
targeting are untenable. We explain this problem below in terms of
a general system of comprehensive socioeconomic transformation.
7
IJMS 19 (1), 135 (2012)

Further details on the analytical version of the general-equilibrium
system are given by Choudhury (1997). The idea expressed in this
reference and similar references is that interactive, and thus unifying
relations between an expanding economic and financial system,
cause systemic learning, that is evolutionary-type equilibriums with
complementarities. The result is heightened participation causing
empowerment for the participants.
If interest-based financing is inverted by the rise of trade-based
instruments in the Islamic case, then there is a decreasing need
and incentive for holding savings in banks and capital markets.
Consequently, Islamic banks become outlets of mobilizing savings
continuously into spending in the good and productive things of life
(referred to as Hayat tayyibah in the Quran). This process, which is
continuous, generates participatory dynamics between spending
possibilities (relations) and between their entities (representative
variables denoting socioeconomic variables and financing
instrumental variables). These variables define the relations and
represent the agencies (agents, institutions, markets, etc., underlying
the relations and their constituent variables). Indeed, the Islamic
world-system, within which are studied the complementary relations
between money, finance and the real economy is fully participatory in
nature (Choudhury, Zaman & Harahap, 2008).
The result then is to interactively integrate the three domains
money, finance and the real economy in participatory ways, so that
they learn by circular causation between them. Such causation is the
same as generating endogenous relations between the representative
pairing variables. Indeed, pairing is the Quranic message of pervasive
complementarities between entities and their representative
variables. The circular-causation phenomenon is termed equivalently
as learning behaviour in the midst of complementary relations. The
pervasive principle of extensive complementarities is the clearest
sign of unity of knowledge, which denotes the epistemological
premise of money, finance and the real economy system of circular
causation relations. The epistemology of unity of knowledge, forming
the complete phenomenology of the socio-scientific system will be
formalized below. The result is a formalism that is universal and
unique in conception and application. In the present case, we study
the money, finance and the real economy complementary circular
causation relations according to the same epistemology of unity of
knowledge as derived from the Quran in reference to the oneness of
8
IJMS 19 (1), 135 (2012)

God as functional ontology working in the experiential order. This
epistemology is understood in this paper equivalently as the unity of
the divine law that causes unity in the world-system.
The argument here is that phasing out the rate of interest in Islamic
financing can neither be sustainable in the absence of a simultaneous
overhaul of the monetary system in relation to the real economy, nor
will the ruptured goal of unity between money, finance and the real
economy lead to the realization of anything that is truly Islamic in
the ummah sense. The latter argument here was explained earlier by
examples in the contemporary history of Islamic economic thought
and action in reference to its imitation of the Occidental worldview.
The Occidental economic thought did vouch for the developmentfinancing regimes devoid of the interest-rate (Sauer, 2002), but with
a failed conception. Likewise, at the present time of global financial
and banking crisis, central banks in most countries are lowering
their prime rates to zero to bring about lower bank-lending rates and
stimulate spending. Yet we cannot say that these economies and the
banking system have been transformed into the Islamic banking and
finance kinds. The fact is that interest-rate reduction to zero can be
attained independently of structural change. Such is the case with
Islamic banks today. They follow the idea of sharia-compliance
instead of focusing on and rising up from the foundation of maqasid
as-sharia (the purpose and objective of the sharia). Consequently, no
structural change has come about in a substantively foundational
way for the ummah. Only a small segment of the financial sector (less
than 2 per cent of the global capital market) remains relatively free of
interest-based transactions. See (M. Parker in Arab News, 3 Jan. 2012)
for supportive facts.
How can an Islamic capital market arise? The fundamental
transformation into the money, finance and the real economy
complementary linkages remains hampered by the blockage in the
flow of resources in the mere presence of the sharia-compliance
idea. A better possibility for realizing the impact of interest-free
financing in the real economy is to establish the wide range of
linkages that money-finance-real economy interrelations generate
and are sustained.
Therefore, to base all transactions on interest-free instruments in the
Islamic economic and financial system is only a necessary condition of
Islamizing the financing and banking system. By itself the abolition
9
IJMS 19 (1), 135 (2012)

of interest financing is not a sucient condition in establishing the
alternative of trade and participatory development in the Islamic
ummah. It is therefore necessary to combine the interest-free
transformation as a process linked with a simultaneous change in
monetary policies and money-finance-real economy relations. Such
relations are generated between the central bank, the commercial
bank and the real economy by circular causation. The resulting new
economic arrangement based on complementary circular causation
between variables and their representative agents would cause
the emergence of unified, synergetic interrelationships between
the monetary system, the financial instrumentation and the real
economy. We now turn to a formalism of the underlying dynamics
in such a case.
The Circular Causation between the Central Bank, Commercial
Banks and the Real Economy in the Midst of Money, Finance and
Real Economy Relations
Consider the resource flows in Figure 1. The circular connections
and the two-way arrows explain the circular-causation relations
between the various entities as noted. Most importantly, in this kind
of circular-causation relationships there occurs the simultaneously
complementary and participatory linkages between the central bank,
the commercial banks (Islamic banks and other banks), and the
resulting complementarities in the real economy between the good
things of life as ordained by the sharia. Such unifying relationships
bring out the nature of monetary policy and the complementary
money, finance and market transformation in the Islamic economy.
The Islamic economy is essentially based on free-market orientation.
But at the same time, it is guided by knowledge induction and
appropriate sharia instruments and policies to realize resource
mobilization into the good things of life. In this respect, the central
bank generates a supply of money as is conventionally known. That
is, the supply of money to banks in excess reserve pursues multiple
credit creation backed by promissory notes. Also, the intent of the
underlying monetary policy is to attain a stable and productive
macroeconomic state of the general (circular) flows of goods and
services in physical and monetary terms.
In the Islamic case, the concept of money supply is replaced by the
concept of quantity of micro-money pursuing the needs of specific
projects that are based on the maqasid as-sharia. The concepts of
10
IJMS 19 (1), 135 (2012)

demand and supply of money are now replaced by that of quantity
of micro-money specific to approved projects. In other words, such
projects are financed by the full quantum circulation of micro-money
in specific projects, as needed.
Central Bank
A and B denote the resource flows between
commercial banks and the Central Bank
Gold
B
A
E
Commercial Banks
Resource mobilization by financial intermediation

C
Money
regeneration
Bank 1
Bank 2
Bank n
Resource
regeneration
through
projects
D
Convergence of resource mobilization the money,
finance and real economy
Real Economy
F
Figure 1. Central bank, commercial bank and real economy

interrelations, and money, finance and real economy relations in
resource mobilization and market transformation of the Islamic
economy.
Explaining Figure 1: The central bank, commercial banks and real economy
linkages
In Figure 1, the label A denotes injection of funds as a quantity of
currency (). Currency is thereby equivalent to money serving as a
medium of satisfying the additional demand of commercial banks
to finance real economy project-specific development in a situation
where market demand for funds exceeds the available financial
resources to fund the projects. The point here is that resource
mobilization through the commercial banks (Islamic banks) will run
its own course through the real economy.
Through such a currency flow, a quantity of micro-money is linked
up with market exchange by the use of financial instruments. Real
11
IJMS 19 (1), 135 (2012)

bills can be endogenously generated by commercial banks under the
authority of the central bank (Green, 1989). Now there would be an
automatic equilibrium circulation of currency through the commercial
banks entering the real economy. This kind of an equilibrium process
of money-finance-real resource linkage must however be governed
by appropriate central bank regulations on sustaining a stable and
growing economy.
We note in such a case, there is no excess creation of money by the
central bank when an automatic equilibrium process is maintained
between the monetary flows generated by linkages between the
commercial banks and the real economy. The commercial banks under
the authority of central bank guidance can generate the real bills for
the increased resource mobilization as needed. Alternatively, it is
possible that central banks create the extra quantity of money needed
to finance a growing real economy. The cost underlying this additional
flow of a quantity of money will be recovered from bank seigniorage.
Seigniorage is revenue gained by the central bank to cover the cost
of producing a quantity of money by gold-backing. The cost will be
collected from the borrowing commercial banks that themselves earn
participatory returns from the yields of the real economy funding of
projects, also from market exchange in approved goods and services.
The central bank and commercial bank interrelationship abides. The
quantity of money required to finance additional projects in the real
economy arises from the increased demand for goods and services
that result in project development.
Such an automatic circulation of money into projects hence the name
micro-money (Choudhury & Hoque, 2004) -- in relation to the real
economy, is shown in Figure 1 by the circular direction of arrows ().
The direction of the arrow indicates the mobilization of monetary and
real resources between banks and the real economy.
On the one side, there is the quantity of goods and services in
demand. On the other side, this real economy demand is satisfied
by the monetary injection. This injection of money equals a quantity
of currency in circulation. The carrier of this circularly regenerated
monetary stock through the real economy in response to the demand
for regenerated resources, comprise the bundle of trade-related
instruments. Trade and commerce thereby replace interest-based
businesses of all kinds.3 The principal meaning and objective of the
quantity of money now becomes the need for currency to finance
productive and appropriate projects in response to the increased
12
IJMS 19 (1), 135 (2012)

demand for the corresponding kinds of goods and services connected
with such approved projects in the light of the sharia. An eective
transmission of money through financial instruments would thus
take place to finance the real economy of goods, services and projects
in the light of the Sharia.
The result thus is contra-bank savings. We mean by bank savings
that part of the earned and national income that is withheld by banks
to serve interest-bearing and speculative portfolio over time.4 Now,
just as trade increases, the flow of resource into the real economy
is enhanced. The quantity of micro-money increases in pursuit of
such a real demand for goods and services connected with projects.
The diversion of income into bank savings to earn interest rate is
diminished. This kind of internal adjustment in the financing medium
brings out the logical and formal basis of trade, thus positively
aecting resource mobilization through the market-oriented real
economic transformation with linkage to monetary flows through
financing instruments. The consequence of this kind of circular flow
dynamics is a continuous liquidation of savings at every moment
of time in the life of the economy by its mobilization into approved
spending outlets.
However, when the total financing cannot be done by the available bank
deposits by households (wherein savings = resource mobilization), the
banks call for additional financing from shareholders and depositors
and the expansion of a quantity of money by the central bank loaned
out to the commercial banks. In such a case, the (financing/deposit)ratio exceeds unity. The principal shareholder/stakeholder of the
Islamic banks, in the sense of the lender of last resort, is the central
bank. Besides, other principal shareholders share-capital can be
secured in the central bank for the benefit of lending to commercial
banks in the situation of excess demand for funds to finance approved
projects. These parts of the monetary flow are included in label A in
Figure 1.
There is yet another type of monetary flow between the commercial
banks and the central bank. When the demand for money to finance
projects declines due to lower market demand, the excess reserve in
commercial banks is liquidated. The resulting amount of unmobilized
financial resources cannot remain in the commercial banks. The
commercial banks are not allowed to hold this saving as excess
reserve, for fear of causing multiple credit creation. Excess reserves
held in commercial banks will otherwise negate the above-mentioned
13
IJMS 19 (1), 135 (2012)

dynamics of trade over saving in regenerating resources and the
quantity of micro-money to meet real demand for goods, services
and projects. The unutilized savings must thus be deposited fully
as reserve with the central bank. Such central bank reserve transfer
form simply stock of unmobilized monetary stock now held with
the central bank. They will form Islamic instruments once they are
mobilized through the commercial banks upon demand. The fund
remains with the central bank until it is called back by the commercial
banks to finance subsequent rounds of enhanced demand in the real
economy. This mechanism is shown at the point B in Figure 1 ().
A simple Version of Financial Flows between the Central Bank,
Commercial Banks and Real Economy
A simple form of the financial flows schema through the monetary and
real economy linkage can be seen in Figure 2. The following symbols
are defined: The important idea here is to convey the dynamics of
circular links between money, finance and the real economy that
generate the cause and eect of sustained resource flow in monetary
and physical terms by circularly interrelating them.
ri, i =1,2,..,n denotes the ith resource outlet, e.g. food, real estate,
cultivation (micro-level)
xi, i = 1,2,..,n denotes unit investment on the ith resource outlet; i.e. per
unit of the spending outlet
ri.xi denotes the total investment on the ith resource outlet
gi1 denotes growth obtained by developing ri
gi2 denotes expansion by growth of xi
R denotes the total regenerated resources following monetary
circulation by financial intermediation across projects financed by
the consortium of m-number of banks and shareholders in the real
economy
Pi denotes the n-number of projects financed by banks
As the circular flow of resources continues over time across several
projects with their increasing product and risk diversifications, so
also the resources get augmented by compounding of (1+gi1+gi2)
over time.5 Commercial banks can now supply real bills as currency
to finance the augmented resource development. As long as the
augmented financial resources following the real economy growth
denoted by (1+gi1+gi2) continue over time there is no reason to go into
the fractional reserve requirement monetary system. All the generated
resources remain with the commercial bank across specific projects.
14
IJMS 19 (1), 135 (2012)

The central bank holds none of the statutory reserve. This though is
the ideal case of 100 per cent utilization of commercial bank real bills
in the real economy in pursuit of approved possibilities.
The initial amount of $1,000 from the central bank is the case where the
investment demand in the real economy is high and the commercial
banks fall short of this amount to finance all projects. Consequently,
the (financing/deposit)-ratio exceeds unity.
We next examine the possibility of resource leakage from the banking
system. The important issue here is to note that the quantity of
money exists in circularity between the demand of the real sector,
the availability of loanable funds with the banks, and the additional
requirements from the Central bank. In the last case, certain amounts
of funds could fail to meet the optimal requirements of the real
economy, thus causing leakages from the desired money, finance and
the real economy interrelationship. Indeed, the usual case of resource
mobilization must accept leakages through the commercial banks in
the real economy linkages with financial instruments carrying money.
Consequently, the resulting contraction of yields in the real economy
allows for say, $900 resource mobilization. This would then cause
$100 to remain as savings in the commercial banks to yield interest
income on idle financial resources when fractional reserves return.
Thereby, the inter-bank flows of such savings in speculative assets
will trigger multiple credit creation and an accumulating amount of
interest cost on debt capital.
To avoid such a situation when the resources are not fully mobilized
into the real economy, the commercial banks hand over the $100
unutilized financial resource to the central bank for safe-keeping.
This becomes the 100 per cent potential reserve of the commercial bank with
the central bank. Note here that this definition of the 100% Reserve
Requirement Monetary System (RRMS) with the gold standard
(explained below), is quite dierent from the 100 per cent reserve
requirement monetary idea explained in the literature (Rist, 1940;
Friedman, 1968).
The commercial bank would use this saved resource at a later date
on the basis of its legitimate claim based on credit-worthiness due to
increased possibility in financing diversified projects. At the time of
such a future release of funds from the central bank, the 100 per cent
reserve converts to money in circulation in the form of a quantity of
currency.
15
IJMS 19 (1), 135 (2012)

The central bank is entrusted with the protection of the value of the
underutilized resources through the commercial banks. This value
protection cannot be done by paper and promissory notes or any such
numeraire whose long-term stability is in question. The choice is gold
as the required stable monetary numeraire. The long-term stability of
gold has been proven historically (Choudhury & Hoque, op cit). Thus
a stock of gold denoted by G is stored by the central bank to stabilize
the value of the central bank reserve, which subsequently becomes
currency in circulation.
Central Bank
G
B: ($100)
A: $1,000
E: R
Commercial Banks
C: 1000 = 6ri.x1
Resource mobilization by financial intermediation
r1x1
Money
regeneration = R
r2x2
Bank 1 P1
rnxn
Bank 2 P2
Bank m Pn
r2.x2(1+g21)
rn.xn(1+gn1)
r1.x1(1+g11)
D
Convergence of resource mobilization the money,

finance and real economy
Resource
regeneration
through
projects (Pj)
6ri(1+gi1)xi(1+gi2) = R
= 6ri.xi(1+gi1+gi2)
Real Economy
F: R
Figure 2. Circular flow of resource augmentation (and contraction)

between central bank, commercial bank and real economy.
Let the change of gold stock be denoted by DG (which in the special

case equals the initial new stock G). Let DM denote the 100 per cent
reserve with the central bank. Let pG denote the price of gold. For
maintaining stability of the monetary stock, that is 100 per cent
reserve with the central bank, the condition is
pG. G = M.
16
(1)
IJMS 19 (1), 135 (2012)

But DM would ultimately add to the currency stock (DC) when DM is
re-injected into the real economy on demand. Thus,
pG.G = M = C.
(2)
Thereby, C/G = pG.
(3)
Now by mathematical integration over the entire stock of currency,

and thereby of the gold stock, with the condition that G = 0, when C =
M = 0, M being the money held by the central bank under the 100 per
cent reserve requirements monetary system, it is true that:
C/G = pG,
(4)
so also C/G = pG.
(5)
This proves that the value of gold that protects the marginal amount
of money by a corresponding marginal amount of gold stock also
simultaneously protects the entire currency as money in circulation
in the real economy. Thus only eective pricing in the real economy
values the currency value per unit of gold-backing of temporarily
unmobilized commercial bank reserve held with the central bank as
100%RRMS.
Central Bank Functions in 100%RRMS
The conclusion now is astounding. A small amount of gold is needed to
protect the entire stock of currency in circulation. The regulatory condition
though is this: The central bank must regulate the stable price of
gold over the long-run. Stability of gold price can be maintained by
regulating the stock of gold in the economy/society. The Islamic state
has the duty of moral suasion to attain such a goal of moderation
on holding gold as precious metal. The same kind of regulation is
extended to the mixed precious bi-metals, gold and silver.
In the 100%RRMS, the role of the central bank in monetary management
is reduced to policy-making and regulation for supervising a
sustainable market economy in approved goods, services and
projects. This situation would involve supervising the management
of a stable and growing economy in concert with the participation
of commercial banks as the principal medium for mobilizing money
and finance between banks, the financial sector and the real economy.
17
IJMS 19 (1), 135 (2012)

The power of creating money by the central bank is reduced to
managing a stock of gold to maintain the value of money as currency
in circulation (see Money Matters on 100%RRMS, internet version).
This function too is inversely related with the velocity and volume of
the circularly mobilized money and finance through the real economy
(Figures 1 and 2).
Gaining from the extensively participatory nature of the 100%RRMS
and the real economy, the central bank also engages in a continuous
activity of knowledge sharing with the central bank and the agents
representing the real economy. This generates an overarching
Learning Process towards determining the general-system relations
involving the central bank, the commercial banks and the real
economy. Thereby, technical analysis, the resulting information sharing,
and development of such learnt policies and endogenous learning experience
become the principal attributes in central bank function in the money,
finance and real economy interrelationships with 100% RRMS.
All functions conventionally endowed on the central bank cease to
have eect. Governance is replaced by the participatory decisionmaking analytical forums. The conventional functions on the other
hand are money supply and monetary regulation, interest rate and
exchange-rate setting by regulating the monetary reserve of the
countries, balance of payments. All these targets are converted into
endogenous causality in our 100%RRMS. Inflation targeting too is
left to market adjustment in the midst of the features of 100%RRMS
with the gold standard and the micro-monetary perspective of project
financing.
The Laissez Faire Concept of Money and Medium of Exchange in
the Literature
Our delineation of a predominantly commercial-banking role in
resource mobilization in the real economy with the central bank
being a lender of last resort and an overseer of the currency value in
market exchange in terms of a quantity of gold-backing, has strong
precedence in the literature (Saving, 1977; Klein, 1975; Tullock, 1976;
Tobin, 1963). Hayek thought about such a kind of private monetary
system in which private banks will play the role of money circulation
(Hayek, 1976). In this case, private money would all be valued on the
basis of a given standard, such as gold, but they would compete with
each other. In other words, competing quantities of money would be
held by private institutions, especially banks, and this would be like
holding money in terms of financial and other assets.
18
IJMS 19 (1), 135 (2012)

Yeager (1997, pp. 412-413) writes in regards to privately supplied
money. Commercial banks would supply such funds. The central
banks authority in such a monetary system would be minimal. This
is his prescription of monetary reform, which Yeager expands upon
the work of Black, Fama and Hall -- BFH (Yeager, 1983):
Government would be banished from any role in the
monetary system other than that of defining a unit of
account or numeraire. We envisage a unit defined by a
bundle of goods and services comprehensive enough for
the general level of prices quoted in it to be practically
steady. Merely by conducting its own accounting and
transactions in the Unit we tentatively so name it, with
a capital U the government would give private parties
a strong incentive to adopt the same Unit.
Yeager continues (op cit, p. 413):
No longer would the size of the numeraire, one Unit, be
determined by the supply and demand for any medium
of exchange. The Unit would be defined by goods and
services having supplies and demands of an almost
entirely non-monetary character.
The Praxis of the Islamic Approach to Trade and Interest Relationship
Our arguments establish the fact that interest-rate eradication in the
Islamic economy cannot be enforced by exogenous forces, policies
and measures. If it is so, as is presently practiced by Islamic venues
everywhere in the world, the replacement of the interest rate will not
be sustained without simultaneously charting the constructive change
that the trade and financing instruments must generate between
money, finance and the real economy. Presently, there is no such
attempt by Islamic banks and Muslim countries in their Islamization
experiment. Consequently, the programme of Islamization of the
financial sector has not proceeded to the extent of contributing to
the rise of the ummah endowed by its own capital markets, intercommunal international trade dynamics, and socioeconomic
development programmes. This is the continued import of idea
from our earlier mention. That is, merely a construal of interest-free
financing modes does not form an adequate benchmark of the sharia.
Islamization is not an adequate approach in such a partial view of
Islamic change. The ummatic view, in which money, finance and
real economy interrelationships play the crucial role of structural
19
IJMS 19 (1), 135 (2012)

change and monetary reform must emanate from the general-system
objective based on the epistemology of systemic unity of knowledge.
We have argued and explained that the Islamic programme to
phase out interest rate, and replace them with trade instruments6
must be carried out within a general equilibrium system of circular
causal relations between money, finance and the real economy. This
simultaneously involves pervasively complementary interrelations
between the central bank, the commercial banks and the 100 per cent
reserve requirements monetary system with the gold numeraire.
Such pervasively complementary relations generate organic relations
in reference to the epistemology of systemic unity of knowledge.
Thus the question arises: Can the central principle of pervasive
complementarities be derived from any other epistemological
premise other than the Quranic foundations? We note here the
empirical and policy-directional role played by the principle of
pervasive complementarities in explaining the epistemology of unity
of knowledge by using the constructed functional ontology of that
unity in diverse problems of the world-system.7 In this paper we have
narrowed down such a problem treatment to money, finance and real
economy participatory unity of relations.
The answer to our above question is in the negative. The dividing
line between Islam and all other systems is the penultimate
quintessence of epistemological reference to the oneness of God, or
equivalently, the oneness of the divine law, which projects the unity
of knowledge in relation to the world-system. In all other systems the
origin of knowledge is premised on the epistemology of rationalism.
Rationalism and its entire constructed system operate on the basis of
methodological individualism, conflict, competition and notions of
scarcity of resources, and thereby, of substitution between contested
entities. The rationalist mind is inextricably rooted in such behaviour
at the level of the individual, institution, society and human relations.
Such a character remains globally at large in this rationalist worldsystem. Even socio-scientific theories and programmes of rationalist
origin stand upon this nature of the world-system and everything in
it (Barrow, 1991; von Mises, 1978; Choudhury, 2008b).
Extending the Arguments to the Open Economy Case
Two cases need to be studied here. The first one is when a regional
group together adopts a common currency. Such an arrangement is
gaining momentum. It is voiced strongly by Mundell (2000) in respect
20
IJMS 19 (1), 135 (2012)

of his prescription for a one world-currency. Likewise, there is the
Euro, the American dollar, and a growing interest in a common Gulf
Cooperation Council (GCC) currency following the inception of a
future GCC common market and monetary union. In our case, the
example is of an incomplete regional arrangement for the 100 per cent
reserve requirements with the gold standard.
In the latter case, the fractional reserve monetary system is treated as
dual with the Islamic banking system. Segmented markets would be
necessary to establish the desired money, finance and the real economy
interrelations. This kind of an incomplete monetary transformation
is presently practised by some Islamic financial outlets, notably the
Islamic Bank Bangladesh and the Islamic Society of North America
Housing Co-operative. In general, the phasing out of interest rates
in Islamic financial operations is embedded in a general system of
simulated interrelations that must be realized with the simultaneous
development of the emergent trade versus interest paradigm.
Following such a recent development, a return to the 100 per cent
reserve requirement monetary system with the gold standard would
be extended within the segmented region that would adopt this
arrangement. The principle of resource mobilization is promoted in
this regional grouping to establish a complementary and participatory
trade and development regime. A regulatory and learning medium
is enhanced by means of active networking between partners and
Islamic banks.
A given stock of gold is parcelled through the medium of an Islamic
bank for settlement of payments. This is a significant global project
that can be considered by the Islamic Development Bank. Since the
stock of gold required for stabilizing currencies would not be great,
and would be inversely proportional to the extent and speed of
resource mobilization, a large stock of gold and its minting cost would
be avoided. Besides, the cost of gold minting would be covered by the
seigniorage that the central bank would collect from the commercial
banks in terms of the cost of production of gold required to protect
the currency value and a legitimate mark-up (Black, 1989) of the
reserve held. Seigniorage would also be collected by participatory
arrangements that would exist in a cooperative agreement to share
risk and returns between the central bank and commercial banks, and
between the commercial banks and the clientele in the real economy.
The latter case is well-known in the profit-loss (mudaraba) and equity
participation (musharaka) arrangements of Islamic banks.
21
IJMS 19 (1), 135 (2012)

For the participatory sharing of risk and return between the central
bank and the commercial banks the resulting seigniorage arises in the
case of partial resource mobilization by the commercial banks. Now
the commercial banks share the services that the central bank renders
by paying for these services in terms of the cost of procuring gold
stock by the central bank plus a service charge on the commercial
banks. The commercial banks can roll over this cost to their clientele
in the real economy by way of service charges. This shows that both
service charges and interest rates are inversely related to productivity
and product and risk diversifications. These positive changes are
causally related to resource mobilization through commercial banks.
The principal cost that would exist is caused by leakages. This is
where the full productivity of the use of money and finance in the real
economy fails -- always, partially, but increasingly so in the interestbearing system. In order to reduce such leakages and share in the full
realization of profitability and cost-reduction, Islamic banks benefit
from the joint consequences of risk and product diversifications.
These conditions always exist eectively in a joint pursuit of resource
mobilization, which is exemplified by the Islamic economic and
financial system.
The paradigm of the participatory, thus endogenous relations
between the central bank, commercial banks (Islamic banks) and the
real economy remains unchanged for the open economy, as is the
case with the closed domestic economy. In the open economy case,
the national central bank, commercial and real economy relations are
further extended by the bank of international settlements of payments
in the Islamic networked monetary arrangement. Figures 1 and 2 are
now extended to incorporate the additional monetary institution of
international monetary settlement.
Productivity-determined Exchange Rate in 100%RRMS with the
Gold Standard
The exchange rate (E) is defined on grounds of productivity, avoiding
the monetary intervention except in exigency of under-mobilization
of financial resources. The following formula reflects this:
Terms-of-trade, t = pX.X/pM.M.
X denotes volume of exports; pX denotes price export.
M denotes volume of imports; pM denotes price of imports.
22
(6)
IJMS 19 (1), 135 (2012)

Rewrite equation (6) as,
E = pX/pM = t.(M/X) is the nominal exchange rate.
(7)
Because X and M are both determined by their similar dynamics

within the country-specific or region-specific 100 per cent reserve
requirement monetary system with the gold standard, therefore,
(M/X) assumes a stable value, say a. Thereby,
E = a.t
(8)
E defines the exchange rate. It is shown to have a stable relationship

with the terms-of-trade variable.
As free trade expands between partners in the region with full or
partial100%RRMS with the gold standard, as explained above, then
M/X tends to 1. Hence trade liberalization along with a phase of
transformation into a 100%RRMS arrangement within and across
the integrating region, result in stability of the exchange rate and the
terms-of trade simultaneously.
It is implied from our continuing formalism below that with greater
speed of economic integration, institutional networking of every
kind, technological diusion, factor mobility, and production and
risk diversifications in the midst of the 100%RRMS arrangement,
expression (8) will cause an upward trend in t, and thereby, in E. The
coecient a will be induced by the force of economic integration,
which in our case of participatory trade and development, is based
on learning and endogenous interrelations in the spirit of systemic
unity of knowledge.
The Functions of Money in the 100% PRMS
The resource mobilization issue in trade versus financial interest implies
that increased complementarities in the system are required so as to
simulate the well-being that is attained from such complementarities
over learning processes. The function of money, finance and Islamic
banks is precisely to attain this well-being objective. So what are the
functions of monetary aggregate in such a system?
Is money a store of value? The value of money arises from the real
economy in terms of approved exchange of goods, services and
project financing. The absence of store of value in money means that
23
IJMS 19 (1), 135 (2012)

there is no productive value in money as such. Rather, the stability of
currency value in international exchange is attained by means of the
gold standard in the way as we have explained for the 100%RRMS in
money, finance and real economy circular interrelationships.
Is money a unit of exchange? Yes, this is true; for money in 100 %RRMS
determines the true relationship between the unit value of money and
the price of goods and services in exchange. Currency is equivalent
to money in circulation in this system. This amount of money in
circulation is supported by the gold standard in order to be stable
and sound money as currency (von Mises, 1981). Indeed, the Prophet
informally denominated various values to monetary units called
danaq and mithqal, in terms of physical units of basic needs (Allouche,
1994). The importance of denominations of weights and measures
appears in the Quran (83:1): Woe to the defaulters in weights and
measures, those who take full measure when they take from men and
who give less when they measure out to them or weigh to them.
Is money a medium of exchange? This property of money is true only
in the static case. In the intertemporal case of resource mobilization
it is dicult to ascertain the state of demand and supply of goods
and services at future time-periods. It is also dicult to ascertain the
risk-contingencies that exist at future points of time. Also, consumer
preferences, systemic risk, and costs of future flows of goods and
services, and financial demand in projects are based on subjective
factors, and are thus undeterminable. Consequently, it is impossible
to ascertain the value of goods and services in exchange, and thereby,
the value of money that would back up such a real economic value.
Therefore, money does not have any market of its own, which
otherwise results in the theory of interest rate as the price of money and
financial instruments. Islamic money being micro-money and specific
to projects that need to be financed, the quantity of money (currency)
in circulation in the economy is determined by full quantum flows
into projects. We write the relations in this case between micro-money
and project-specific financing as,
MxV = Pxy, or M = (Pxy)/V
(9)
When V = 1, or 100 per cent circulation (full micro-money mobilization

through banks), then,
M = Pxy
24
(10)
IJMS 19 (1), 135 (2012)

Expression (9) means that the value of a stock of micro-money
equals the total spending value in terms of the prices and quantities
of approved goods and services in exchange pertaining to specific
projects (activity).
Note that y denotes real output. Thus an alternative definition of
money is the value of GDP, which in turn represents the value of
all spending (expenditures). But all these implications are specified
by projects, rather than by the economy as a whole. We therefore,
interpret that a quantity of money, M, is driven fully into financing a
project(s). This is the meaning of full quantum financing of projects
by micro-money.
Hence, V 1. This is equivalent to the consequence of 100% RRMS,
in which, any saved (unmobilized money as currency) is totally
surrendered to the central bank. Otherwise, the micro-money as
currency is totally mobilized as resource to fit into projects in the real
economy.
We can write equation (10) in the light of the project-specific condition
of micro-money transmission (M*) through commercial bans as,
M* = iMi = P.yi = P.y for economy-wide case
(11)
These kinds of project-specific circulation of micro-monetary units

were considered by Yeager (1983) in his laissez-faire approach
to monetary reform. Yeagers Unit of money and Hayeks (1976)
competitive currency units are weighted against a bundle of goods and
services whose prices remain stable by supply and demand in market
exchange against the value of the currencies used as monetary units
for denoting exchange value of real goods and services. This kind
of currency valuation against the real goods and services in market
exchange can be used both in the regional and international sense.
For example, units of currency can be the Islamic Dinar. The common
commodity base for valuation is gold and silver in the 100%RRMS
with the gold standard.
Yet the currencies in circulation may not be strictly in these precious
metals. Any government-certified way of holding money as a means
of settling payments nationally, regionally, and internationally can be
protected by the minting of the residual stock of gold, G, shown in
Figure 2.
25
IJMS 19 (1), 135 (2012)

In the end: Functions of Money
We have debated against the notions of demand and supply of
money, and replaced the concept of quantity of micro-money
mobilized into projects through the banking sector in complementary
relations with the real economy and by appropriate participatory
financing instruments. This paper has also rejected the unquestioned
acceptance of the notions of the mainstream functions of money. Of
these, only the function of unit of exchange as it is actually realized
or intertemporally established with market transactions is acceptable.
The function of store of value is untenable, for value is jointly claimed
by money and market exchange of real goods and services as they
are temporally realized and as payments are settled. The function of
money as the medium of exchange is rejected in the absence of a well
determines of the exchange values of goods and services over time.
Ludwig Von-Mises (1981, p. 84) writes in regards to the notion of
money as a medium of exchange (slightly edited):
Its (state) task thus becomes that of determining, in
accordance with the intent of the contracting parties,
what is to be understood by money in commercial
transactions. From the legal point of view, money is
not the common medium of exchange, but the common
medium of payment of debt settlement.
In this paper, we have gone a step further by arguing that money is a
convention to settle payment contracts at every determined moment
of clearly realized market exchange in the real economy.
Conclusion: Inferences on the Islamic Alternative on Global
Financial Crisis
Islamic banks are claimed to have remained safe from the financial
crisis that is sweeping the world today. Central banks of most
countries have cut down their prime lending rates to near zero to
stimulate consumer and investment lending. Yet the deepening crisis
continues. Islamic banks although insulated from the global financial
crisis due to their operations that do not involve the stock market and
speculative financing, have not gained advantage of the situation to
contribute to the ummah future, and thereby, to show the path out
of the crisis for the rest of the world, except by pointing out the zerointerest agenda and the alternative trade financing instruments.
26
IJMS 19 (1), 135 (2012)

This paper argued that reducing the interest towards zero is not a
new recommendation of any economic system during financial crisis.
Spending and innovation require venture capital to be freely mobilized
by development-financing instruments through commercial banks.
Yet such a central bank policy is not taking eect toward stabilizing
the global financial system.
This paper points out that simultaneously with the phasing out of
interest rate to zero, it is necessary to reconstruct the general-system
design of the relations between the central bank, the commercial bank,
and the real economy. Within such general-system reconstruction
must be taken up all such circular causation synergies that establish
pervasive complementarities between the productive and good
things of life that are not simply sharia-compliant but also meet the
demands of the greater purpose of well-being that is embedded in
the purpose of the sharia (maqasid as-sharia). This is a panacea for
the Muslim and non-Muslim alike - because unethical, unsocial, and
thereby, immoral things equally abhor all peoples and cultures.
Most fundamentally, underlying this common heritage of mankind
upon which to build, renew, or reconstruct old and fallen systems
is the epistemological shift away from rationalism. Rationalism
breeds methodological individualism. Contrarily, the epistemology
of systemic unity of knowledge as the core of unity of the divine laws
in relation to the world-systems, establishes the world-systems on
the foothold of cooperation. Discourse with convergence towards
consensus is the goal and the result universally.
Discourse leads to new patterns of monetary futures. The global
financial crisis requires a change in the monetary arrangements along
with fiscal stimulus through reduced interest rates to restore stability.
Our above-mentioned recommendations can be extended for global
institutional reform. In that case, the central banks of member
states would be superseded by a regional bank of reconstruction
and development. In the case of the Islamic ummah such a global
monetary reform can be guided by Islamic Development.
On this issue the International Monetary Fund has a standing idea.
The IMF. U.S. Treasury Secretary muses on such a direction of
monetary reform in the following words:
This is an important moment for the IMF and its future.
The IMF has a critical role to play in the global resolution
of the financial crisis. The proposed modernizing reforms
27
IJMS 19 (1), 135 (2012)

will begin the process of making the IMF more
representative of the global economy. It is strongly in the
U.S. interest that the Fund fulfills these responsibilities
in order to retain its relevance and preeminent place
in the international monetary system. The need for
a strong and eective IMF is all the more pressing
in the challenging global economic environment we
find ourselves in today. (http://www.treas.gov/press/
releases/hp1307.htm,U.S. Department of the Treasury,
Deputy Assistant Secretary Sobel Remarks on the Global
Financial Crisis and the IMFs Response, Dec. 2, 2008).
The above quote signifies the urgency of the time to launch the
blueprint of a future reform of the monetary system in conjunction
with the outlook of the real economy to gain global economic and
financial stability. This paper has pointed out what structure of
reasoning and institutional change will be required inside such an
alternative form of money, finance and the real economy interlinked
system in the Islamic economic and financial framework.
28
IJMS 19 (1), 135 (2012)
APPENDIX
THE PHENOMENOLOGICAL CONSTRUCTION OF THE
ISLAMIC WORLDVIEW OF UNITY OF KNOWLEDGE:
MONEY, FINANCE AND REAL ECONOMY
COMPLEMENTARY LINKAGES
We explain here the epistemological, ontological and evidential (ontic)
constructs of the phenomenological model of unity of knowledge in
the Islamic socio-scientific order. This is a complex and extensive field
of inquiry. Details of the phenomenological have been examined by
Choudhury (2006). Underlying all phenomena in Islamic intellection
is this epistemological invoking of a systemic way of understanding
oneness of the divine law at work. The phenomenological model
of unity of knowledge is universal in the sense of its extensive
explanatory and applicative capability. In the case of money, finance
and real economy, the problem of unified interrelations has been
explained in this paper.
As a general methodology, a tuple (x (see Figure 3) is
characterized within the general equilibrium system that simulates
the learning relations between the elements of the tuple. q-values
as flows of knowledge are generated within and across learning
processes. They denote learning parameters that induce all variables
endogenously. These are generated in reference to the epistemology
of the unity of knowledge (Choudhury, 1997).
Several kinds of organic unity of the phenomenological system can be
noted in Figure 3. These delineate the intra-process and inter-process
dynamics and can be generalized to multiple systems by extension.
First, we note the unity of derived knowledge from the epistemological
core within a discursive process to come up with the limiting value of
knowledge-flow. This learning experience along with everything to
follow represents endogenous relations caused by their induction by
the knowledge-flow parameters, the q-values.
Only the epistemological core, (,S) remains exogenous. This latter
case is true both at the beginning and the end of the processes shown
in Figure 3. Hence the Beginning is equivalent to the End, and
the continuity over the Space, Time, and Knowledge domains is a
closed one.8
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IJMS 19 (1), 135 (2012)

Secondly, we note the organic unity of knowledge between the
elements of the vector tuple. This pairing phenomenon is explained
by the principle of pervasive complementarities together with the
use of the functional ontological model of simulating the money,
finance and the real economy interrelations. Besides, the same kind of
construction applies for the organic unified interrelations by learning
(discourse) between the central bank, the commercial banks (Islamic
banks) and the 100%RRMS with the gold standard.
Thirdly, we note that within any process the phasing out of interest
rates by trade instruments causes heightened resource mobilization.
This brings about increased complementary relationships between
resource mobilization and social well-being denoted by W(,x()).
Fourth, learning by simulated complementarities between the
elements of the tuple within any Process involves discourse over
diverse possibilities (Interaction). Interactions lead to limiting the
value of the learning parameter within a Process. This is the limiting
knowledge-value, *. Attaining of q* marks the phase of Integration
(social consensus) emanating out of Interaction. At the end of
any learning Process there comes about subsequent Evolution into
the new learning processes. Evolutions arising from Interactions
leasing into Integrations carry on the recursive learning processes in
continuity over the knowledge-space-time domains. This is enabled
necessarily and suciently by epistemological recalling of (,S), as
shown.
Fifth, the entire IIE-character of the learning process is universal
and continuous by its extensions until the Hereafter. The Hereafter
(Akhira) is described as the Great Event [9] in the Quran.
The all-inclusive IIE-model comprises the universal model of the
unity of knowledge. It describes the phenomenological construction
of the Islamic epistemological worldview in everything. A scientific
explanation of the concept of everything is given by Barrow (1991).
Figures 1 and 2 in the text of this paper particularized the circular
causation between money, finance and real economy in the case of a
conscious transformation of Islamic monetary operation as a generalsystem framework of the creative purpose of the Sharia (Maqasid alsharia) for simulating social well-being.
30
IJMS 19 (1), 135 (2012)
(:,S)
{T}
[T*
x(T*)]
Recalling (:,S)
continous
Process 1
SimulateT*W(T*,x(T*))
New processes emanate in subject
to circular causation knowledge-space-time between the
elements of the continuity vector x(T*).
Continuity until
the hereafter
(Akhira)
Epistemology:
Quran

(:) and Sunna

(Prophetic
tradition, S)
Unity of knowledge
(Oneness of God)

Discursive generation of
flow of worldly
knowledge on issues
under discourse
Limiting value T* of the
discursive set {T} between
agents
Recurrent continuity of the

learning processes
epistemologically induced
by (:,S)
THE PHENOMENOLOGICAL
MODEL CONSTRUCTION
Delineation of vector of variables (T*,x(T*))

for issues under study. The tuple and
delineating the simulation problem denote
the functional ontological
Figure 3. The phenomenological model of learning in unity of

knowledge.
31
IJMS 19 (1), 135 (2012)
End Notes
1.
2.
3.
4.
5.
6.
7.
8.
9.
32
In the suprime mortgage market, purchase price of the

housing asset < Present Value of discounted future cash-flows
(capitalization). This phenomenon is well-known.
The own rate of interest = D%pc/pcf; where pc denotes current
price of a commodity; pcf denotes future price of the commodity.
The idea is that each commodity is intertemporally valued
according to its own interest rates. But in the static equilibrium
model, these divergent interest rates converge to a given rate.
The Quran declares (2:275): Allah has permitted trading and
forbidden riba (interest).
Savings = Personal Income Spending; whereas also the supply
function is S = S(i,I), i: rate of interest. Hence, savings is that part
of unspent income that is sensitively influenced by interest rate.
Assume gi1 = 5%; gi2 = 5% for i=1,2,..,n number of financed projects.
For ten rounds of resource mobilization and regeneration
through the commercial banks, the amount of money that will
be created as a result equals 1000x(1.10)10 = 2593.742. For n =
10 projects, the total quantity of money in circulation equals
10x2593.74 = 25,937.42.
These are the participatory development-financing instruments
of mudaraba (profit-sharing) mushraka (equity-participation),
murabaha (mark-up pricing), and questionably the secondary
financing instruments and Islamic bonds called sukuk.
Functional ontology is the logical explanation of the being of
a certain reality (e.g. mathematical model, logical formalism),
as opposed to ontology taken in the metaphysical sense of the
being of God or what Heidegger called Dasein. In Islamic belief
we cannot work at the level of critical discourse of the latter.
But functional ontology is accepted Islamic medium to unravel
the unity of the divine laws at work in the world-systems.
Functional ontology can be subjected to scientific discourse.
Quran (92:13): And verily unto Us (belong) the End and the
Beginning.
Quran (78:1-5): What are they asking (one another) about?
-- About the great news, (i.e. Islamic monotheism, the Quran,
and the Day of Resurrection), about which they bare in
disagreement. Nay, they will come to know! Nay, again, they
will come to know! Within this great event is embedded the
meaning of the unity of divine knowledge and its relations with
the world-systems in continuity till the end.
IJMS 19 (1), 135 (2012)
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THE EFFECTS OF INTEREST RATES

VOLATILITY ON STOCK MARKET RETURNS
IN MALAYSIA AND SINGAPORE
K. TAN
M. H. YAHYA
A. N. BANY ARIFFIN
Abstract
This research examines the eects of interest rates volatility on stock market
returns in Malaysia and Singapore. The data used are market returns on the
FBM Kuala Lumpur Composite Index (FBM KLCI) and 3-months deposit
yields in Malaysia over the period of September 1999 to December 2010. For
the Singaporean market, the monthly data of market returns on the Straits
Times Index (STI) and 3-months deposit yields in Singapore during the
same period are used. Two separate GARCH (1,1) models are applied for
Malaysia and Singapore. Results suggest that interest rate volatility in each
country has a strong positive relationship with its respective stock market
volatility. The results also show that the volatility of interest rates has a
negative relationship with the stock market return but the relationship is
insignificant.
Keywords: Interest rates, stock market, GARCH, Malaysia, Singapore,
FBM KLCI, STI.
Introduction
Interest rate risk is one of the significant financial and economic
factors that have an eect on the common stock value. Interest rate
reflects the price of money and has influence on other variables in the
capital and money market. When interest rates increase, they have
a negative eect on the value of financial assets by increasing their
required rate of return. For example, the increase of interest rates
might direct investors to change the structure of their investments
from capital markets to fixed income securities markets. In contrast,
the decline of interest rates leads to the rise in the present value of the
future dividend (Hashemzadeh & Taylor, 1988).
37
IJMS 19 (1), 3751 (2012)

A financial market is a market place where movements of funds from
savers to investors occur. A stock market is the subset of the financial
market which plays an important role in the growth and development
of economy. In fact, the changes in the demand of equities in the stock
market closely aect the stock market return and volatility. Stock
return volatility refers to the variation in the change of stock price
during a period of time. The higher the variation, the higher the risk of
a particular stock is. Generally, policy makers are more interested in
looking for the determinants of stock market volatility, while market
practitioners are keener towards the eect of stock market volatility
on hedging options and more exotic derivatives. Stock volatility may
weaken the smooth functioning of the financial system and adversely
aect the economic performance. The volatility of the stock market
has been proven to have a number of negative impacts in economic
performance. It aects the economy through its eect on consumer
spending (Poterba, 2000), business investment (Zuliu, 1995) and
economic growth (Levine & Zervos, 1996).
Prior researches have investigated the determinants of stock market
return for the last several years. There are a number of factors that
influence the general movement of stock prices in the market. The
connection between macroeconomic variables and the movement of
stock prices for developed countries have well been documented in
several literature (Fama, 1981; Kaneko & Lee, 1995; Maysami & Koh,
2000; Chen, 2003). Interest rate is suggested as one of the macroeconomic
variables that could aect stock market volatility (Ramin & Lee, 2004).
Studies on the relationship between the behaviours of the stock market
and macroeconomic factors are numerous in the literature. These
studies, however, have concentrated on the developed markets of the
United States, Europe and Japan. Among others, Fama (1981, 1990,
1991) documented the relationship between stock market returns and
fundamental economic activities in the United States. Chen (1991)
and Fama (1991) model the relationship between asset prices and
real economic activities in terms of production rates, interest rates,
inflation and so on and so forth. In the Malaysian and Singaporean
context, Ibrahim (2000), Ibrahim and Aziz (2003), Ramin et al. (2004)
and Janor (2005) investigate the dynamic interactions between the
stock market and economic activities.
Among the macroeconomic factors, interest rate is suggested as one
of the factors that might aect stock return and volatility. A reduction
in interest rates would reduce the cost of capital for calculating the
price of financial assets. Tight controls on lending may have limited
38
IJMS 19 (1), 3751 (2012)

borrowing to finance the acquisition of assets, while relaxation of
controls may increase demand for assets including equities. An
eective relaxation of controls on bank lending is likely to raise asset
prices and could result in bankers and others misreading price signals
and in over-lending by banks and over-trading by their customers.
Increased competition among lenders could lead to customers gearing
up their operations and taking greater risks, and hence lead to more
defaults (Kaufman, 1986; Davis, 1990).
Even though many studies have documented the strong relationship
amongst the equity market and macroeconomic variables especially
in western countries, there is still a need to pursue the issue in relation
to the Malaysian and Singapore markets. This is due to the fact that
the structure of the Malaysian (emerging market) and Singapore
(developed market) stock markets are significantly dierent in terms
of market capitalization and liquidity. From the perspective of the
monetary policy in Malaysia and Singapore, the change in interest
rate would indeed aect the demand of equity in the financial market.
Respective central banks will adjust the interest rate accordingly
based on the condition of the economy. When the inflation is high
and economy is overheating, the central bank will actually tighten the
monetary policy by withdrawing funds from the banking system and
increasing the interest rates. The volatility of the stock market has been
proven to aect the overall economy, therefore, the determinants of
the stock market returns and volatility have to be examined in order
to consolidate the future stock market returns forecasting. Interest
rate is one of the stock markets return determinants (Ramin & Lee,
2004), however, only a few studies have been conducted in examining
the influence of interest rate volatility towards stock market returns
in Malaysia and Singapore, for example, Cheong (2008) and Islam
(2003). While previous studies by Ramin et al. (2004) and Aisyah et
al. (2009) put emphasis on studying the determinants of the stock
market, this paper studies the eect of interest rate volatility on the
stock market.
The objective of this research is to contribute to the existing literature
on the relationship between interest rates and stock returns and
volatility in Malaysia (emerging market) and Singapore (developed
market) stock markets. By examining the predictive power of the
interest rate volatility on stock market performance, investors will
be able to make better security investment decision by monitoring
the changes of interest rates. This research will focus on examining
the predictive role of interest rate volatility towards stock market
39
IJMS 19 (1), 3751 (2012)

returns and volatility. This research is important in consolidating
the predictive power of future stock market returns in Malaysia by
looking into interest rate volatility. The result from this research
would be useful in the process of decision-making especially
for investors, corporations, and regulators. It would also help to
widen the horizon of investors when they come to equity portfolio
management decisions.
Literature Review
According to Chong and Goh (2005), with regards to the eect
of macroeconomic variables on stock prices, the Ecient Market
Hypothesis (EMH) proposes that due to the competition among the
profit-maximizing investors in an ecient market, it will make sure
that all the available and relevant public information currently known
about the changes in the macroeconomic variables are completely
reflected in the current stock prices. Hence, investors will not be able
to earn abnormal profit through the prediction of the future stock
market movements.
There is a considerable member of studies that have been conducted
on the impact of financial variables on stock prices. Besides, Aisyah et
al. (2009) states that the macroeconomic variable such as interest rate
influences the stock market returns. For example, restrictive policies
via higher interest rates would make cash flows worthless after
discounts. Thus, it would lower the attractiveness of the investment
and shrink the value of the stock return. Research has been conducted
by Fama (1981) in which he finds that stock prices are the reflectors of
various macroeconomic variables such as interest rate, inflation rate,
exchange rate and industrial production.
Henry (1986) analyses the eects of interest rates and other
macroeconomic variables, along with dummy variables to capture
the impact of the Asian Financial Crisis 1997. His findings confirm
the eects of the macroeconomic variables such as interest rates
towards the stock market indices in countries under study, though
the magnitude of associations diered depending on the countrys
financial structure. Islam (2003) extended the above research to
investigate the long-run equilibrium and the short-run dynamic
adjustment relationship between macroeconomic variables (interest
rate, inflation rate, exchange rate and industrial productivity) and
the Kuala Lumpur Stock Exchange (KLSE) Composite Index. He
40
IJMS 19 (1), 3751 (2012)

finds that it is statistically proven that there are significant longrun (equilibrium) and short-run (dynamic) relationships among the
interest rates and the KLSE stock returns. The research findings from
Islam and Watanapalachaikul (2003) show a significant long-run
relationship between interest rates and stock prices during the period
1992 to 2001 in Thailand.
The volatility of the stock market refers to the price variation of the
stock market over time (Zvi et al., 2009). The volatility and risk issues
have become gradually important to market participants, financial
practitioners, researchers and regulators. Campbell (1996) asserts
that stock market volatility aects consumer spending. The impact
is linked via wealth eect. He explains that when wealth increases, it
will drive consumer-spending up. Nevertheless, consumer confidence
falls when the stock market falls and drives consumer-spending down.
The volatility of the stock market can be inferred as an increase of risk
in equity investment and results in a shift of funds to a less risky asset.
According to Zuliu (1995), stock market volatility also distresses
business investment. His research investigates whether the volatility
of the stock market influences the real fixed investment. His analysis
indicates that the volatility of the stock market is negatively related
to the growth of investment. In addition, the stock market volatility
weakens fixed capital formation; hence, the outcomes recommend the
desirability of reducing the volatility of the stock market.
Ehrhardt (1991) states that interest rates have powerful eects towards
stock returns. Furthermore, Koh and Maysami (2000) investigate the
impacts of interest rate on the stock returns and the result shows that
the interest rate is one of the determinants in predicting the stock
prices. Likewise, similar outcomes are achieved in various studies in
dierent countries such as Alper (2007) and Gulin and Gokce (2008).
By using wavelet analysis with the Granger causality test, Cifter
and Ozun (2007) investigate the impact of interest rate volatility on
stock returns in Turkey. They find that the eect of interest rate is
granger causes ISE 100 index. Furthermore, the eects of the interest
rates on stock returns increases with higher time scales. Bren et al.
(1989) examine the significance of predictable variations in stock
index returns. They find that the one-mouth interest rate is useful in
predicting the sign and the variance of the excess returns on stocks.
Cheong (2008) investigates the fractionally integrated behaviour of
KLSEs volatility from 2000 to 2005 and find that during the recovery
period, the stock market exhibits the presence of risk premium, long41
IJMS 19 (1), 3751 (2012)

memory volatility, and significant relationship between news and
volatility. This implies that bad news has higher predictive power for
upcoming volatility and finally the existence of heavy-tailed property
in selected volatility models. Ndri (2008) examines the influence of
interest rates towards stock market returns and volatility by using
weekly returns on the KOSPI 200 from 1992 to 1998. The results of this
research found that the market returns of KOSPI 200 have a negative
and significant relationship with interest rates. At the same time, the
variance of returns has a positive but not significant relationship
with interest rates. The findings indicate that the interest rates have a
strong positive power for stock returns, however, a weak predictive
power for volatility of KOSPI 200.
Data and Methodology

Stock market indices, such as the FBM KLCI and the STI index, are
widely used for measuring the performance of the stock market.
Interest rates refer to the cost of obtaining capital. In this research, it is
proxied by the average of the interbank deposit rates in the Interbank
Money Market. Generally, the central banks in the countries conduct
the monetary policy by influencing the level of interest rate. The
decision of injecting or withdrawing funds which is made by the
central bank would influence the level of interest rate in the financial
system. The monthly FBM KLCI and the 3months deposit yield data
in Malaysia are used for the period beginning in September 1999 and
ending in December 2010. For Singapore, the monthly STI and the
3-months deposit yield in Singapore for the same period are used in
order to do the comparison. All the data were obtained from the Data
Stream System.
The continuously compounded monthly index returns are calculated
using the formula below, where Yt represents the return on the market
index.
Yt = log (Pt/Pt-1) x 100
(1)
Pt represents the market index price at time t and Pt-1 represents

the index price at t-1. Interest rate is first dierenced and then
compounded continuously because the main purpose is to appreciate
the eect of volatility in the interest rates on stock market returns and
volatility.
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IJMS 19 (1), 3751 (2012)

The AutoRegressive Conditional Heteroscedasticity (ARCH) model
was introduced by Engle (1982) to estimate the conditional mean
return and volatility models. The main idea of ARCH is that the
variance of u at time t(= t2 ) depends on the size of the squared error
term at time (t-1), that is on ut21 . Nevertheless, the ARCH model
has a few diculties as it is hard to decide the number of lags (q)
of the squared residual. The lags of squared error which are needed
to capture all of the dependence in conditional variance might have
large varying. Furthermore, the more parameters there are in the
conditional variance equation, the more that one or more of them will
have negative estimated values.
This model was further extended by Bollerslev (1986) into the
Generalized Autoregressive Conditional Heteroscedasticity (GARCH)
in which is commonly applied the class of time series models in recent
financial literature in studying volatility. The dierence between
ARCH and GARCH is that the conditional variance of u at time t in the
GARCH model is dependent not only on past squared disturbances
but also on past conditional variances.
Researches on the relationship between the stock market and the
return volatility method by using the multivariate GARCH model
have been growing like mushrooms. For instance, the GARCH model
is being widely applied in examining the volatility of the stock market
in developed and emerging countries. The studies include Huang
(1995) for nine Asian countries; Lee et al. (2001) for China; Cheung
and Coutts (2001) for Hong Kong; Karmakar (2003) for India; Lima
and Tabak (2004) for Hong Kong and Singapore; Ndri (2008) for
Korea, Ravinder et al. (2009) for 10 emerging markets.
As it has been proven that the GARCH model is an eective tool for
examining stock market volatility, it is employed in the methodology
of this research.
The equation for GARCH (p,q) can be represented as follows:
Yt = 0 + 1 Yt-i + t
(2)
2t = 0 +
+ 2t-j
(3)
Where Yt represents the return on the index, Yt-i is the lagged return
series, 0 is a constant term and t represents the error term in the
equation (2). p is the order of the autoregressive GARCH terms and
43
IJMS 19 (1), 3751 (2012)

q is the order of the moving average ARCH. The variance of 2t is a
function of the mean 0, the long-term average volatility. The ARCH
term notated by
is the interest rate volatility. The GARCH term
2
notated by t-j is the previous periods forecast variance.
GARCH specification requires that parameters 0 , i and j should be
positive for non-negativity condition and the sum of i and j should
be less than one to secure covariance stationarity of the conditional
variance.
+ < 1
The persistence degree in shocks to volatility is the total of the
coecients i and j that need to be less than or equal to unity for
stability to hold.
The estimation of the GARCH model involves the joint estimation of
a mean and a conditional variance equation. In order to appreciate the
impacts of interest rate volatility on the monthly conditional index
returns and variances, two models are employed. Model 1 is without
the changes of interest rate, while model 2 is with the changes of
interest rates in the mean and variance.
Model 1:
Yt = 0 + 1 Yt-1 + t
(4)
+ 2t-1
2t = +
(5)
Model 2:
Yt = 0 + 1 Yt-1 + 2 Rt + t
(6)
+ 2t-1 + Rt
2t = +
(7)
Where 0 , 1 , , and are constant terms. Yt represents the return

on the index, the change in the logarithm of the index price in period
t, t is the disturbance term and Rt is the variable reflecting interest
rate changes or volatility.
Findings
The estimates of the conditional market variance equation parameters
will be first discussed. Then, it will followed by the discussion of
the estimates of the conditional mean equation. Table 1 shows the
44
IJMS 19 (1), 3751 (2012)

estimates of Model 1 and Model 2 for the FBM KLCI sample period.
Model 1 indicates the estimates without interest rates while Model
2 includes interest rate volatility in both conditional mean and
variance.
Table 1
Estimates of Model 1 and Model 2 for FBM KLCI
0
1
2
Log-lik.
Model 1
0.0052
(0.1680)
0.1720
(0.0421)
--0.0001
(0.1863)
0.1385
(0.0225)
0.8200
(0.0000)
--219.3495
Model 2
0.0436
(0.0683)
0.0643
(0.4048)
-0.0121
(0.1169)
-0.0010
(0.0000)
-0.0513
(0.0025)
1.0019
(0.0000)
0.0004
(0.0000)
231.0742
Notes. Log-lik. is the log-likelihood function. P-values which are significant at 5% level
are shown in parentheses.
The result from Table 1 indicates that the point estimates of

conditional variance parameters for Model 1 and Model 2 are almost
the same. The result shows that the conditional volatility of returns
is fairly persistent for Model 1 and Model 2. The sum of and is
0.9585 for Model 1 and 0.9506 for Model 2, in which both results are
less than 1. The results for Model 1 in Table 1 are very similar to the
results reported by Ndri (2008). This indicates that volatility of return
is mean; reverting no matter how much time it takes, the process of
volatility does return to its mean.
Model 2 contains the interest rates in the conditional variance and
mean equation. The estimate of in variance equation (7) is positive
and statistically significant. The result above suggests that interest
rate contributes in predicting FBM KLCIs volatility. The result is
consistent with the results indicated by Campbell (1987), Shanken
(1990) and Whitelaw (1994). The result above shows that interest rates
do help in predicting stock market volatility in Malaysia.
45
IJMS 19 (1), 3751 (2012)

In the conditional mean equation (6), the estimate of 2 is negative
but not significant. The negative relationship between interest rates
and conditional market return is consistent with the results reported
by Giovannini et al. (1987), Campbell (1987) and Shanken (1990). This
points to less significant predictive power of interest rates on the
market returns in Malaysia.
Table 2
Estimates of Model 1 and Model 2 for STI
0
1
2
Log-lik.
Model 1
0.0073
(0.1104)
0.1764
(0.1193)
--0.0001
(0.0982)
0.1380
(0.0081)
0.8230
(0.0000)
--190.2621
Model 2
0.0132
(0.0886)
0.1332
(0.1833)
-0.0021
(0.7132)
-0.0003
(0.0000)
0.0661
(0.0154)
0.9247
(0.0000)
0.0002
(0.0000)
197.2425
Notes. Log-lik. is the log-likelihood function. P-values which are significant at 5% level
are shown in parentheses.
Table 2 shows the estimates of Model 1 and Model 2 for the STI sample
period. It is similar to Table 5 in which Model 1 indicates the estimates
without interest rates while Model 2 includes interest rate volatility in
both the conditional mean and variance.
The results for STI are very similar to the result showed in the FBM
KLCI. The result from Table 2 specifies that the point estimates of
conditional variance parameters are almost the same for Model 1 and
Model 2, with the sum of and being 0.9610 and 0.9908 for Model
1 and Model 2 respectively. Both the sum of and are less than 1.
As mentioned, Model 2 includes the interest rates in the conditional
variance and mean equation. The estimate of in variance equation
(7) is also positive and statistically significant at the 5% level. The
46
IJMS 19 (1), 3751 (2012)

above result indicates that historical interest rate volatility has a
positive relationship with STI volatility. Additionally, the inclusion
of interest rates in the conditional variance significantly aects the
estimates of , and in the model as well. The result above shows
that interest rates do help in predicting volatility in Singapore.
In the conditional mean equation (6), estimate of 2 is negative but
not significant at the 5% level. The result is consistent with the result
found in the FBM KLCI. This result shows that the predictive power
of interest rates on stock market return in Singapore is not significant.
The result is consistent with the result reported by Ramin et al. (2004).
The diagnostic check of standard residuals is carried out to check
Model 1 and Model 2 for both markets. The results are shown in Table
3 and Table 4 below.
Table 3
Diagnostic check for FBM KLCI
Standardized residuals
Skewness
Kurtosis
Model 1
-0.3445
4.0967
Model 2
-0.1967
2.9207
ARCH LM Test
F-statistic
Obs* R-squared
0.0202
0.0205
(0.8871)
(0.8861)
0.0191
0.01936
(0.8903)
(0.8893)
Notes. P-values are in parentheses.
Table 4
Diagnostic check for STI
Standardized residuals
Skewness
Kurtosis
Model 1
-0.5676
3.7076
Model 2
-0.3451
3.1829
ARCH LM Test
F-statistic
Obs* R-squared
0.2480
0.2514
(0.6193)
(0.6161)
2.2111
2.2076
(0.1394)
(0.1373)
Notes. P-values are in parentheses.
The ARCH Lagrange multiplier (LM) test is used to do the diagnostic

check for the two models in both the Malaysia and Singapore markets.
Table 3 shows the result of the diagnostic check for FBM KLCI, while
47
IJMS 19 (1), 3751 (2012)

Table 4 shows the result for STI. The kurtosis for FBM KLCI and STI
are both peaked relative to the normal. Table 3 and Table 4 also show
negative skewness which indicate that the standardized residuals
are not normally distributed. The ARCH LM test statistics for the
2 models in both markets show that the standardized residuals do
not exhibit additional ARCH eects. This indicates that the variance
equations are well specified in the two models in both markets and
the test confirms all the models are fairly specified.
Conclusion
This research paper examines the eect of interest rate volatility on
the stock market returns and volatility in Malaysia and Singapore.
Two GARCH (1, 1) models are applied in the analysis for the
respective countries. Model 1 in the analysis is without interest rates,
while Model 2 incorporates interest rates in the conditional mean and
variance. The study period for this research started in September 1999
and ended in December 2010. Similar results are found for the both
markets. The results for both models in the two markets show that
the estimates of variance parameters and conditional market returns
are nearly identical in which the sum of and are less than one.
Furthermore, the results for both markets suggest that historical
interest rate volatility has a positive relationship with stock market
volatility. In other words, the results show that interest rates in both
Malaysia and Singapore do help in predicting the volatility in their
own stock markets. The findings of predictive power of interest rates
on stock market returns for both the FBM KLCI and STI are also
similar. The result shows that the volatility of interest rates in each
country has a negative relationship with the stock market returns
of FBM KLCI and STI. However, the results are not statistically
significant.
The results of this research have a substantial influence in policy
implication for investors. As stated by Ndri (2008) interest rates
aect the decision of investors to either invest the fund in bond or
equity market. This research has shown that interest rates do aect
the volatility of both markets. Investors should keep their eyes on the
monetary policy as a means for adjusting their investments in Malaysia
and Singapore. Since the result shows that the predictive power of
interest rates on stock market returns for the FBM KLCI and STI are
not significant, it suggests that there could be other macroeconomic
48
IJMS 19 (1), 3751 (2012)

factors that might aect the stock market returns in Malaysia and
Singapore. The other macroeconomic factors are referring to inflation,
exchange rates, industrial production and money supply in Malaysia
and Singapore. Future research can further investigate the predictive
power of the other macroeconomic factors on the stock market returns
for both markets.
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SOCIAL CAPITAL AND EDUCATIONAL

ATTAINMENT AMONG RURAL COMMUNITY
IN MALAYSIA
ROSLAN ABDUL HAKIM
Othman Yeop Abdullah Graduate School of Business
RUSSAYANI ISMAIL
NOR AZAM ABDUL RAZAK
Abstract
The determinants of educational attainment among children have become one
of the main research agenda among scholars, educationists and economists
alike. In most studies, the focus is on the relationship between educational
attainment and factors such as the quality of teachers, schools, educational
technologies, curriculum design, the financial and human capital aspect of
the families and the ability of children themselves. Recently, the focus has been
expanded to explore the relationship between social capital and educational
attainment. As an addition to the existing literature, this paper attempts to
investigate the impact of social capital on educational attainment using a
regression analysis based on a sample of 2500 households, gathered from a
rural community in Terengganu, Malaysia. Six domains of social capital
are used to arrive at the index of social capital. The argument advanced
in this paper is that social capital, which could be viewed as the outcome
of networking, cooperation and trust at the household level, is expected to
have a positive impact on a childs educational attainment. Towards this
end, we regress childrens education attainment on social capital along
with other relevant independent variables, i.e. family, children, school and
neighbourhood characteristics. Interestingly, the result of our study reveals
that the level of social capital that a family has, is found to be significant
and has the expected positive sign. This finding implies that social capital
at the household level appear to be a critical factor in determining a childs
educational attainment. Thus, our finding lends support to the idea that
social capital is a good predictor of childrens is educational attainment.
Keywords: Social capital, educational attainment, rural community.
53
IJMS 19 (1), 5371 (2012)
Introduction
One of the main functions of education is to instil knowledge and
skills in students, i.e. to enhance human capital, which is imperative
for economic growth and development. Besides, education also
performs another equally important function, which is nurturing
socially accepted values and norms to the student. Thus, a well
educated person is not only expected to have sound knowledge and
skills, but is also expected to behave in accordance with the values
and norms of the society, have a sense of social responsibility, as well
as to be able to play a proper role in the society. The latter, i.e. to
play a proper role in the society, requires interaction and engagement
with the society at large. Thus the childs ability or skill to interact
and engage with society, i.e. social capital, turns out to be another
expected outcome of education. Education therefore, should produce
higher social capital, which is found to be vital towards the overall
development of the society (Putnam, 1995; 2000). Thus, it is not
surprising to find that there are many empirical studies that have
been carried out to examine the relationship between education and
social capital. Putnam (1995, 2000), Brehm and Rahn (1997), Alesina
and La Ferrara (2000a) for instance, found that there is a positive
relationship between education and social capital. Despite huge
literature discussing the importance of education in producing future
social capital, the reverse, i.e. the importance of social capital as one
of the factors that contributes to high achievement in education has
equally gained much attention in recent literature, such as Colemann
and Hoer (1987), Bryk and Schneider (2002), and Steinberg (1996),
to name a few. In fact Coleman (1988) has conceptualised the impact
of families and their environment in particular to highlight the
importance of social capital. Interestingly he categorises the family
impact into three separate components, i.e. human capital, financial
capital and social capital. Basically human capital refers to parents
education, financial capital refers to familys wealth or income and
social capital refers to the density of interaction among parents,
children and school.
Most of the early literature focusing on students achievement
has paid much attention to the first two types of capital with little
attention given to social capital. However a continuously persistence
gap in educational attainment among children has provided room
for researchers to find other factors that could explain the gap.
Thus social capital is believed to be one of the missing factors. The
importance of social capital to explain the gap in a childs achievement
54
IJMS 19 (1), 5371 (2012)

basically lies on the premise that family interaction within the family
itself (interelationship) and outside (social networking) will help to
improve a childs achievement since larger social capital means better
information and communication, greater social networking and
group membership. Thus, we argue that the challenge for improving
educational attainment among children therefore does not solely lie
in technological or financial solutions to education, but also in the
promotion of social capital at the household level.
Realising the importance of social capital in promoting a childs
educational achievement, this paper attempts to investigate the
relationship by using the primary data obtained from a rural
community in Terengganu, Malaysia. Using the rural community in
Terengganu, Malaysia as a case study, the paper attempts to investigate
whether the results hold true for the case of Malaysia. We are mindful
that the results should be interpreted with great caution and may not
be generalised to represent Malaysia as a whole but nevertheless it is
hopeful that the study will provide some understanding towards the
impact of social capital on a childs educational achievement.
The rest of the paper is as follows. Section II provides a brief
perspective on social capital, while section III discusses some of the
existing empirical studies on social capital and education. Section IV
describes the data and method. Section V presents the findings of the
study followed by a conclusion in section VI.
Perspectives on Social Capital

In the last few decades, there is a growing interest among social
scientists to investigate the role and contribution of social capital
in achieving some specified desirable policy outcomes. Basically,
the argument behind social capital is that, socialising is good.
Socialisation will bring about the sense of connectedness between
individuals and their families, friends, community and the rest of
the society. This connectedness in turn generates what we term as
social capital. Social capital thus could be regarded as another type
of capital that can be added to the existing two categories of capital,
i.e. financial and human capital. The dierence is that this capital
is regarded as social since this capital is only accessible in and
through relationships with other human beings. As with other forms
of capital, financial and human, social capital can be accumulated and
depreciated. It can be accumulated through investment by having a
broader and deeper interaction and participation in the society. The
55
IJMS 19 (1), 5371 (2012)

deeper the connectedness, i.e. the higher and greater the intensity of
interaction (engagement, involvement or participation), the higher
and larger the social capital is. However, unlike financial and human
capital, social capital will depreciate when it is hardly used, but it will
accumulate or increase when it is frequently used (Glaeser, Laibson &
Sacerdote, 2002; Adler & Kwon, 2002).
As far as social capital is concerned, not only it could bring about
intangible, psychological impact but will also have an eect on
socioeconomic or tangible outcome, in the same way as financial and
human capital. Investment in social capital is believed to successfully
produce tangible (material or economic) gains to individuals and
society. The gains are realised since social capital creates trust, which
helps to reduce transaction cost (Fukuyama, 1995), and facilitate
coordinated actions of individuals, and hence improve the eciency
and eectiveness of the society. In this regards, Putnams view of
social capital is worth mentioning. According to Putnam (1993):
functions of social organizations, such as trust,
norms, and networks that can improve the eciency of
society by facilitating coordinated actions.
Indeed, many studies have shown that social capital has positive
socioeconomic consequences. Those nations or communities endowed
with a large and diverse stock of social capital are perceived to be in
a stronger position to deal with poverty and vulnerability (Moser,
1996; Narayan, 1995), resolve disputes (Schat, 1998; Varshney, 2000),
take advantage of new opportunities (Isham, 1999), and achieve
higher levels of growth and welfare (e.g. Knack & Keefer, 1997; Rose,
2000). Besides, individuals, households or communities possessing
more social capital are usually also healthier and happier (e.g. Rose,
1999; Arts & Halman, 2004), have less corruption and more eective
governments (Putnam, 1995), have enhanced economic achievement
(Fukuyama, 1995), as well as attain better educational achievement
(Coleman, 1988; Lopez, 1996; Teachman, Paasch, & Carver, 1996;
Etcheverry, Clifton, & Roberts, 2001; Huang, 2008). Conversely, the
lack of social capital can have the opposite outcome.
Social Capital and Education

There is vast literature discussing the importance of social capital and
a childs academic success. According to Tsang (2009), it is Coleman
(1988) who first relates the notion of social capital to education.
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IJMS 19 (1), 5371 (2012)

Coleman is of the opinion that the level of connectedness between
the child and his or her family, friends, community and school is
as equally an important determinant of the childs well being and
educational development as human and financial capital.
In order to investigate the importance of social capital in determining
educational success, various studies have been carried out by Coleman
and his colleagues (Coleman & Hoer, 1987; Coleman, Hoer, &
Kilgore, 1982a, 1982b, 1982c). In his study he found that religious
schools, mainly the Catholic schools, reported much lower dropout rates and better learning outcomes compared to public schools.
He relates his finding with the argument that religious schools tend
to have higher social capital due to non-familial association that
cross generation, which creates better functional communities and
closeness of social structure. This, in turn, enables the children to gain
the positive eects that accrue through high social capital. In another
study, Coleman (1990) pointed out that social capital in family
relations and in community social organizations are useful for the
cognitive and social developments of children and youths. In other
words, social capital is useful for creating human capital of students
(Coleman, 1988). When discussing social capital, Coleman and Hoer
(1987) suggested that both the functional and structural components
of social capital should be considered. A mere relationship will not
bring about any productive interaction. Thus it is important to ensure
the functionality of the relationship which can be enhanced through
trust and good norms. Apart from the studies carried out by Coleman
and his colleagues, other studies also have cited the importance of
social capital in student achievement. Bryk and Schneider (2002) and
Lee and Croniger (1994) for example, have reported that there is a
connection between strong relationships and student achievement.
The positive eect of social capital through parental involvement in
schools has also been cited by Steinberg (1996).
Another study by Furstenberg and Hughes (1995) reported that
parents social investment in their children and the community
(social capital), increase the chances of children graduating from high
school and attending college. A study by Crosnoe (2004) revealed that
emotionally distant relationships with parents were associated with
declining academic achievement over 2 years of secondary schooling.
Lopez (1996) cited that social capital in the form of conducive home
and school environments are found to be very important factors in
determining educational outcomes compared to socioeconomic
status. His conclusion is based on his study among White and
57
IJMS 19 (1), 5371 (2012)

Latino youths. Etcheverry, Clifton, and Roberts (2001) examine the
eects of social capital on the development of knowledge, skills, and
attitudes among undergraduate university students. Their findings
show that students perceptions of social capital resources have direct
and indirect eects on their educational achievement. They find that
students perceptions of support, specifically support derived from
interactions with other students, are an important resource that
relates positively to their academic self-concepts and their grades.
Perhaps they should mention studies that show the importance of
socioeconomics status on educational attainment.
Based on the studies that are mentioned here, it is worth noting
that the importance of social capital in contributing towards high
academic achievement cannot simply be ignored. The empirical
results support the notion that higher accumulation of social capital is
more likely to produce children with higher educational attainment.
At the community level, better communication and interaction, trust,
cooperation between the school authority, parents and the rest of
the community, as well as tolerance to rules and regulations, could
produce children with better educational attainment. Similarly, a
household that has better information, and good interaction between
parents and children, is expected to produce better and successful
children. Therefore, social capital is regarded as a catalyst that
could boost educational outcomes.
Data and Method

The Data
The data used in this study are primary data gathered through a
survey carried out between May 15 and June 2, 2009 in Terengganu,
Malaysia. The area under study consists of three districts, namely
Dungun, Kemaman and Hulu Terengganu, which cover about
three quarters of the total area of the state of Terengganu. The total
population in these three districts is estimated to be about 416,600,
while the estimated number of households is 90,565 (Table 1).
The sample of the study consists of 2500 households, which
constitute about 3% of the estimated total number of households
in the three districts. The sample was selected through a stratified
random sampling method. In the 2500 households, there are a total
of 12,321children. Our units of analysis in this study are children of
58
IJMS 19 (1), 5371 (2012)

the household heads who during the survey have reached the age
of 24 and above. The reason is that, in Malaysia students normally
graduate from universities at the age of 23 after completing 34 years
of their university education. By limiting our sample to those who are
24 and above as well as due to missing values, the total number of
observation in this study is reduced to 2085.
Table 1
Sample of the Study by Districts (Number of Households)
District
Total
Population
Dungun
Kemaman
Hulu Terengganu
TOTAL
Terengganu
164,000
176,400
76,200
416600
1,094,300
Estimated
Number of
Households*
35652
38348
16565
90565
237891
Sample*
Percentage*
985
1058
457
2500
39.4
42.3
18.3
100.0
Source. Malaysia. Department of Statistics. State/District Data Bank 2008.

*Authors own estimation, assuming average household in Terengganu consists of 4.6
family members.
Measures of Social Capital

According to the literature, there is a disagreement on what constitutes
social capital. Thus it is not surprising to find that there is also a
disagreement on how social capital should be measured. Nonetheless,
based on previous work and suggestions, Grootaert et al. (2004)
summarized that social capital at the household level constitutes six
domains. These are: a) groups and networks, b) trust and solidarity, c)
collective action and cooperation, d) information and communication,
e) social cohesion and inclusion, and f) empowerment and political
action.
In this study, we focus on the social capital aspect by giving attention
to the importance of the role of the family within the community
rather than within the family itself. We adopt Grootaert et al.
(2004) to arrive at the measure of social capital. Table 2 shows 13
items covering the six domains of social capital that are used in the
construction of the social capital index. All of the items representing
each domain are in the form of yes or no answer. A value of 1
is designated to the yes answer, while the value of 0 is given to
59
IJMS 19 (1), 5371 (2012)

the no answer. In order to derive the social capital index for each
individual household, the percentage of yes answers is calculated.
Then this percentage is transformed into a scale of 1 to 10 by applying
a linear transformation1, as below:
Y = h(x) = 1 + (9/100)*x
where x is the raw score (percentage of yes answers) and Y is the
(social capital) index score. This social capital index is constructed for
each household and is used in the estimation of the regression model.
Table 2
Social Capital Dimensions and Related Indicators
Dimension
Groups and
networks
(i)
(ii)
Trust and solidarity (i)

(ii)
Collective action
and cooperation
(i)
(ii)
Information and
communication
(i)
(ii)
(iii)
Social cohesion and (i)
inclusion
(ii)
Empowerment and
political action
(i)
(ii)
Items
Membership in formal or informal organisations
or associations.
Ability to get support from those other than family
members and relatives in case of hardship.
Most people in the community can be trusted
Most people in the community often help each
other.
More than half of the community contribute time
or money towards common development goals.
High likelihood that people in the community
cooperate to solve common problems.
Frequently listen to radio.
Frequently read newspapers.
Frequently watch television.
Strong feeling of togetherness within the
community.
Feeling safe from crime and violence when alone
at home.
Have control in making decisions that aect
everyday activities.
Vote in the last general election (2008).
The Regression Model

Basically there are three approaches in empirical studies on
educational attainment (Wilson, 2001). First, is the human capital
approach where education is viewed as an investment good and
this investment brings about economic returns. Based on the
60
IJMS 19 (1), 5371 (2012)

corresponding expected returns, the individual then will choose the
level of education that he or she desires. This approach assumes that
the returns to human capital is important and will have an impact
on the level of education that the individual chooses to undertake.
However, this approach ignores other factors that may directly
influence the process of education itself such as the quality of school
and family, which has an impact on the education outcome of the
individual. Second, is the education production function approach.
Following this approach, education attainment is viewed as output,
while the variables (factors) that contributed towards producing the
output (educational attainment) are viewed as the inputs. Inputs in the
process of education could be the teachers, parents, and schools, that
play important roles in education. In contrast with the human capital
approach, the education production function approach assumes that
the environment (i.e. inputs) in which the student (children) receives
education is of utmost important, but it however, appears to ignore
the role of returns to education. Third, is the combination of the two
approaches where the reduced-form equation is estimated without
any attempt to understand the underlying mechanism through
which the independent variables aect educational attainment. This
approach simply examines the relationship that is present among
education, earning (returns) and the education environment (such as
school and parents, quality).
In this study, we follow the educational production function
approach. This approach has been employed for instance by Pritchett
and Filmer (1997), Hedges, Greenwald and Laine (1994), Glewwe,
and Kremer (2006), Todd and Wolpin (2003), Hanushek (2003) and
Fehrler, Michaelowa, and Wechtler (2009). Following this approach,
this study regards educational attainment as output, while the
educational environment, i.e. the education process that may have an
impact on the output are viewed as the inputs. Here, we divide inputs
into four categories: the household or family, school, neighbourhood
and children characteristics. Thus, the educational production
function can be generally stated as follows:
Child education attainment = f (Household or family characteristics,
School characteristics, Neighbourhood
characteristics, Children characteristics)
Our dependent variable of interest (educational attainment) is
measured by the number of years of schooling for the children from
each household who are at the age of 24 years and above during our
survey. The independent variables are categorised into four main
61
IJMS 19 (1), 5371 (2012)

groups, i.e. family, school, neighbourhood and child characteristics.
Following Coleman (1988), we classify the family factors into three
main categories: financial capital, human capital and social capital.
In our study financial capital refers to household income, family
size and the ratio of education expenditure to the total household
expenditure. Human capital refers to parents education and we use
the index of social capital based on six domains as explained in the
text to measure social capital. We further add the marital status of the
households head since previous studies show that the marital status
(i.e. either single parent or divorced mother) will have an impact on
students achievement.
Based on the availability of data at the district level, we managed to get
the student per teacher ratio to represent school characteristics. The
student per teacher ratio is calculated based on the registered number
of students in each particular district and divided by the number of
teachers in that district. Due to data limitation and time constraint,
we were not able to obtain the ratio for each individual school, so
our assumption was that, schools that reside in the same district
will have the same ratio. For the neighbourhood characteristics we
used the ratio of the number of registered students in each district to
juvenile cases in each district to show the extent or degree of safety
in the neighbourhood. Therefore the higher the ratio the safer the
community is. Gender and birth order are used to measure child
characteristics. Table 3 summarises the dependent and independent
variables involved in the study.
Table 3
Definition of the Variables
Variables
Dependent variable
Education attainment
Independent variables
Household characteristics
Household income
Number of children
Ratio of education
expenditure to total
expenditure
Definition
Years of schooling of children aged above
24 years
Monthly household income (RM/month)

The number of children in the household
Monthly expenditure on education /total
monthly household expenditure (RM/
month)
(continued)
62
IJMS 19 (1), 5371 (2012)

Variables
Social capital
Definition
Index of household social capital (Index
value of 1 to 10)
Fathers education
Years of schooling of the father
Mothers education
Years of schooling of the mother
Marital status of the head of Dummy variable (0= married; 1= single
household
parent/divorced )
School characteristics
Ratio of student to teacher
Number of student per teacher
Neighbourhood characteristics
Ratio of student to juvenile Number of students per juvenile case
cases
Children characteristics
Gender
Dummy variable (1= male; 0 = female)
Birth order
Birth sequence of the child in the family
Specifically our model can be represented by the following equation:

where Educi is child is educational attainment measured by the
number of years of schooling, Soci is the index of social capital and x
is a vector of control variable which are summarised in Table 3. The
model is estimated by the ordinary least squares (OLS) method. The
summary statistics of the variables are shown in Table 4.
Table 4
Summary Statistics of the Variables
Variables
Average Minimum Maximum
Std. Dev
Education attainment
11.29976
18
2.774096
Household income
Number of children
2192.014
6.846043
100
1
15750
11
1666.335
2.334501
Ratio of education expenditure to total 9.973357

expenditure
68.18
Social capital
7.367266
3.25
10
1.373475
Fathers education
5.733813
16
3.090545
11.26954
Mothers education
5.033094
14
3.284986
Marital status of the head of household
0.0019185
0.0437688
7.556168
6.709743
7.712305 0.3014153
(continued)
63
IJMS 19 (1), 5371 (2012)

Variables
Average Minimum Maximum

378.7234
Std. Dev
Ratio of student to juvenile cases
628.8623
1172.177 347.4673
Gender
0.5285372
0.4993047
Birth Order
2.541007
10
1.555089
Note. Number of observations = 2085.
The Results
The results of the study are shown in Table 5. In general, our study
reveals that all variables which could be generally categorised as
family characteristics and children characteristics are significant and
have the expected signs in explaining the variation in educational
attainment of children. However, our findings show that the
variables which could be categorised as school and neighbourhood
characteristics are not significant in explaining childrens educational
attainment. With regards to family characteristics, our finding shows
that household income is significant and has a positive correlation
with educational attainment of the child. We also discovered that the
ratio of expenditure on education to the total household expenditure is
also significant and positively correlated with educational attainment.
These findings imply that the level of financial capital (resource) that
the family has, as well as the percentage of financial resource that
the family allocated to education relative to others, are important
variables that eect the educational achievement of children. The
number of children that the family has is also significant and has the
expected negative sign. It implies that as the number of children that
the family has increases, generally the level of educational attainment
of their children declines. This is not surprising as many studies have
also found similar results as ours (Downey 1995; Lillard & Willis
1994; Parish & Willis, 1993).
What is more interesting is that our variable of interest in this study,
i.e. the level of social capital that the family has, is also found to be
significant and has the expected positive sign. This finding implies
that social relationships as well as networking of the family appear to
be a critical factor in determining their childs educational attainment.
Thus, our finding lends support to the idea that social capital is a
good predictor of childrens educational attainment. Besides, our
finding also confirms previous studies that find the crucial role of
social capital in educational attainment such as those by Coleman
(1988), Etcheverry, Clifton and Roberts (2001), Astone, Nan and Sara
McLanahan (1991), and Lopez (1996).
64
Number of obs = 2085F( 7, 2431) = 18.27

Prob > F = 0.0000
R-squared = 0.0884
Root MSE = 2.6557
Constant
Household characteristics
Household income
Number of children
Ratio of education expenditure to total
expenditure
Social capital
Fathers education
Mothers education
Marital status of the head of household
School Characteristics
Neighbourhood Characteristics
Ratio of student to juvenile cases
Children Characteristics
Gender
Birth order
Estimation Results
Table 5
1.659295
0.0000369
0.0284952
0.0054767
0.0444659
0.0221855
0.0211032
1.3339423
0.2041728
0.0001793
0.1168213
0.0409502
0.0001427
-0.071832
0.0252125
0.100666
0.1006193
0.0846642
-3.93216
-0.261657
-0.0002474
-0.4868715
0.2109513
Std. Error
9.564628
Coecient
-4.17
5.15
-1.38
-0.13
2.25
4.54
4.01
-2.94
3.87
-2.52
4.61
5.76
P>|t|
0.000
0.000
0.168
0.898
0.024
0.000
0.000
0.003
0.000
0.012
0.000
0.000
-0.7159709
0.1306345
-0.0005989
-0.4265708
-0.130856
0.0571111
0.0432785
-6.558914
0.0000704
-0.1277143
0.0144899
-.2577721
0.291259
0.0001042
0.3742394
0.1882467
0.1441275
0.1260499
-1.305406
0.0002151
-0.0159498
0.0359351
12.81869
[95% Conf. Interval]

6.31057
IJMS 19 (1), 5371 (2012)
65
IJMS 19 (1), 5371 (2012)

Furthermore, our study also uncovers that parents education,
which could be viewed as human capital at the family level, is also
significant and positively correlated with childrens educational
attainment. Again, this is not surprising at all as the evidence of
this positive correlation between parents educational level and the
childs educational attainment is also found in other studies such as
that of by Boocock (1972). It is also interesting to discover that the
parental family structure, whether the family is intact or broken
as indicated by the marital status of the head of household, is also
crucial in childrens educational achievement. Our result shows
that children from divorced parents (single parents) tend to have
lower educational attainment than those with parents who are still
intact. Our finding indicates that broken marriages (family) did have
negative consequences on childrens educational attainment. Studies
by Astone and McLanahan (1991), Mare (1980) and McLanahan and
Sandefur (1994) also found similar results. They found that children
who grow up in divorced (single-parent) families are more likely
to drop out of school compared to children who grow up in intact
families.
Quite surprisingly, our study shows that school and neighbourhood
characteristics are not significant in explaining the variation in
childrens educational attainment. We suppose that the explanations
for these findings might be related to the limitation and quality of
our data. As mentioned earlier, we were not able to obtain the ratios
(student-teacher ratio and student-juvenile cases ratio) for each
individual school. Thus, we used district data to represent data at the
school level with the assumption that schools that are located in the
same district will have the same ratio.
With regards to variables which could be grouped under children
characteristics, interestingly, our study shows that the gender of
the children did have a significant negative correlation with their
educational attainment. The result indicates that female children tend
to be more successful in education than male children. This finding
might reflect gender dierences in the attitude and motivation
towards learning. Female students (children) in general are perceived
to be relatively more diligent and more serious in their schooling than
male students. Furthermore, we also found that the sequence of birth
of the children in the family is significant and positively correlated
with their educational attainment. This result signifies that, in a given
family, younger children tend to excel more in education than older
children. Probably this is due to the fact that younger children are
66
IJMS 19 (1), 5371 (2012)

blessed with natural-born teachers (i.e. their older siblings), and the
number of these teachers increases with the number of ospring in
the family.
Conclusion
The issue of the educational attainment of children is an important
issue since raising knowledge and skills, which form one of the main
goals of education, will contribute to the accumulation of human
capital. Besides, education is also generally perceived to be the
social leveller, i.e. an important factor to reduce inequality and social
exclusion. Thus, the educational attainment of children is a serious
issue that needs to be addressed since it is commonly found that there
is a gap in the level of educational attainment among children not
only between urban and rural areas, but also within the urban and
rural areas itself. The existence of the gap in educational attainment
implies that there might be a waste of human resources since the
talents and potentials of the children are not developed to the utmost
possible. The question then, is how to raise educational attainment
and reduce the gap? Normally, to enhance as well as to reduce gaps
in educational performance among children, an emphasis is given
to the financial and human capital aspects. Thus, to reduce gaps
in educational performance between rural and urban areas, for
instance, policy makers tend to give more attention in enhancing
school facilities and allocating quality teachers in the rural areas via
financial and human capital investment. The contention of this study
is that social capital at the family level as well as at the school and
community levels are as important as financial and human capital.
We argue that social capital at all of these levels family, school and
community - has long been disregarded in the eort to reduce the
gaps in the educational performance of children. Addressing this
question entails an investigation on the determinants of educational
attainment. Identifying the determinants is important since it will
guide policy-makers on figuring out what works and what does not.
Towards this end, we examined the case of educational attainment
among children in rural Terengganu, Malaysia. Specifically, we
examined the relationship between social capital and educational
attainment.
Our finding reveals that social capital, which is our variable of
interest in this study, is found significant and is positively correlated
with educational attainment. This finding lends support to our
67
IJMS 19 (1), 5371 (2012)

contention that social capital plays an important role in determining
the educational attainment of children. This implies that raising the
educational attainment of children requires more than investment in
physical and technological development of education. At the household
(family) level, our study reveals that investment in social capital,
such as by enhancing networking, cooperation and participation in
local community activities, as well as accessibility to information and
communication technologies (ICTs), would also help towards raising
the educational attainment among children. Furthermore, reducing
the gap between the urban and rural educational achievement level,
as well as within the urban and rural itself, requires not only reducing
the gap of schools in terms of physical, technology and human capital
investment, but eort must also be given to reducing the gap in
social capital between families and communities. Perhaps, this could
be achieved by encouraging parents to cooperate and participate in
local community programmes such as through the Parent-Teacher
Association (PTA).
End Note
1.
See Laporan Kajian Indeks Persepsi Integriti Nasional 2007 by

the Institut Integriti Malaysia (2008). Retrieved from http://www.
wildlife.gov.my/info_perhilitan/ LaporanKajianIntegriti07. pdf
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Research Observer, 15(2), 225249.
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IJMS 19 (1), 7386 (2012)
MALAYSIA HOUSEHOLD WEALTH

DISTRIBUTION: CURRENT EVIDENCE AND
FUTURE PROSPECTS
MUHAMMED ABDUL KHALID
Institute of Malaysian and International Studies
Abstract
The paper studies the distribution and inequality of wealth among the
household per capita in Malaysia, using the 2007 Malaysias Household
Income Survey (HIS) data. Consistent with findings from other countries,
the distribution of wealth is more skewed than that of income. The
distribution of wealth shows that the top 10% of Malaysian households per
capita control 35% of the countrys wealth, while the bottom 40% own 8%.
The decomposition of wealth shows that the Gini coecient for savings is
0.98, while the figure for investment assets and real estate assets are 0.90
and 0.52 respectively. It is expected that wealth inequality will widen in the
future due to several factors such as liberalization of the higher education
policy and pro-rich tax treatment.
Keywords: Inequality, Malaysia, wealth.
Introduction
Much has been written on the distribution of income and income
inequality in Malaysia (see e.g. Ragayah, 2009; Jomo, 2004; Ragayah,
2004; Ragayah, 1999; Shireen, 1998; Ishak & Ragayah, 1990; Jomo
& Ishak, 1986; Ragayah, 1978; and Ishak & Ragayah, 1978), but
little has been done on the distribution of wealth, perhaps due to
the unavailability of data. This is quite surprising considering that
Malaysia has among the highest level of income inequality in the
region, comparable to those countries in Latin America and Africa.
In 2003, the income share received by the highest income decile
(measured by Gini) was 39.2, a high concentration compared to just
22.5 for Singapore, 28.5 for Indonesia and 32.4 for Thailand (Leete,
2007). Although there is no data on household net worth in Malaysia,
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IJMS 19 (1), 7386 (2012)

there is reason to expect more extreme concentration of wealth in
Malaysia compared to income. In all countries where household net
worth data is available, the Gini coecient for household wealth is
always more than the Gini coecient for household income (OECD,
2008; Davies, Sandstrom, Shorrocks, & Wol, 2006). The income
disparity is not reflective of the net worth or economic well- being of a
household or an individual, and to rely solely on the income indicator
is misleading and erroneous.
To get a complete picture of the economic well-being of a citizen, it
is not sucient to just look at income or earnings; a study on wealth
would be more appropriate. This study will attempt to do just that;
the main focus is the disparity gap on household ownership and
distribution of wealth, focusing on vertical1 inequality rather than
horizontal inequality. The analysis will concentrate on the component
of wealth i.e. real estate holdings (land and houses) and financial
assets (savings and stocks). In most international studies on wealth,
the portfolio composition of wealth includes the same components
such as home equity, business equity, financial assets, stocks and
savings from income, although the concentration of dierent assets
among households varies from one country to another. Our aim
is to find out what the dierences in wealth among the Malaysian
households are.
Data and Methodology

For this study, data on wealth distribution will be based on processed
secondary data, derived from the Household Income Survey (HIS)
2007 obtained from the Economic Planning Unit (EPU). The main
objective of the HIS was to collect information on the pattern of income
distribution classified by various socioeconomic characteristics in
Malaysia. The survey was carried out by the Department of Statistics to
collect information on household income and identify poverty groups.
For HIS 2007, a total of 38,083 households were covered, which was
more than 1% of the Malaysian population. This study will estimate
gross wealth based on the following components: financial assets and
real estate holdings. The methodology for deriving at the financial
assets and the real estate is as follows: the financial asset is derived
from the extrapolation of the sum of income from interest (e.g. bank
deposits, bills, bonds, loans, etc) and dividends (e.g. from ownership
of shares, unit trusts, etc).2 The extrapolation of interest will give us
74
IJMS 19 (1), 7386 (2012)

total savings, and dividends will give us total investments. Dierent
yields are assigned to both interest and dividends respectively to
get the value of the total savings and total investments. The yield
assigned to savings is 2.5%, which is the average of 12 months fixed
deposit at a rate of 3.71% and conventional bank savings rate of 1.30%
in the year 2007. The yield assigned to investments is 5.8%, which
is based on the returns from the Employee Provident Fund (EPF) in
the year 2007. The real estate asset refers to ownership of residential
property. This is derived from the imputed rent of owner occupied
house and rent from houses or other property including both land
and house.3 In order to get the value of the real estate, a gross rental
yield is assigned to the sum of rent of owner-occupied houses and
rent from houses or other property, and the property value is then
calculated as the annual rental value divided by the rental yield. The
assigned yields are as follows: 4% for urban areas and 3% for rural
areas for all the states, except for Kuala Lumpur where the assigned
yield is 5%.4 The ocial exact figures for the yield based on property
location and types are not available. As such, the yields are derived
from alternate sources.
The analysis is based on the household per capita basis. The inequality
analysis will be done using the Gini coecient index, the Theil index,
as well as quantile5 and decile percentages measurements.
Results
Distribution
The analysis from the Household Income Survey 2007 showed that
about 15% of Malaysian households had no wealth. Although the
figure of Malaysians without wealth seems high, the percentage was
much lower when compared to the situation in the United States in
1995 where the percentage of Americans with zero wealth then was
18.5% (Wol 1998, p. 2). However, the Americans have more financial
assets than Malaysians, as their figure for zero financial assets stood at
28.7% while in Malaysia it was 38%. The figure was higher in Korea in
1998, where 40% of its households had no savings or financial assets
(Leipziger et al., 1992, p. 40). Closer to Malaysia, it was reported that
the half of the rural and urban households in Indonesia had zero
financial wealth in 1997 (Frankenberg et al., 2003, p. 306, in Davies &
Shorrocks, 2005, p. 17).
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IJMS 19 (1), 7386 (2012)

The average wealth holding of a Malaysian in 2007 was RM86,6596,
while the median was RM71,534. The overall distribution of the
wealth holdings is shown in Figure 1 below. The top 10% households
controlled 35.22% of the wealth distribution, while the bottom 10%
controlled nothing. The bottom 40%, meanwhile, had just 0.15% of the
top 20%; their overall ownership of the wealth holdings equalled to
just 8.02%. The average wealth of the bottom 40% stood at RM39,334,
while the figure for the top 20% was RM124,737, translating into a
disparity of 0.31.
10
47.9
13.1
7
Quantile
64.8
16.9
34.8
10.7
24.2
9.0
7.2
8.0
5.5
100.0
35.2
15.2
2.5
2.4
0.1
0.1
0.0
0.0
0.0 HIS 2007.20.0

Source.
40.0
60.0
Cumulative Share, % %
80.0
100.0
120.0
Group Share, %
Figure 1. Distribution of wealth in Malaysia in 2007.

The decomposition of wealth showed that the bulk of the wealth, or
about 96%, comprised of real estate assets, while the financial assets
contribution to the wealth holdings was quite negligible at about 4%
(Graph 1). This is consistent with the composition of wealth in other
countries, where the majority of the wealth consisted of real estate or
tangible assets, rather than liquid monetary assets. In Canada, half
of the wealth was held in terms of real estate (Matteo, 1997), in the
United States the figure was 44% (Wol, 1998), in China it was 67%
(Gustafsson et al., 2001) and in Korea and Indonesia, the figure was
90% and 70% respectively (Leipziger et al., 1992).
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IJMS 19 (1), 7386 (2012)
Wealth
RM86,659
RealEstate
FinancialAssets
InvestmentAssets
Savings
RM83,037
RM3,622
RM2,510
RM1,113
RM
RM10,000 RM20,000 RM30,000 RM40,000 RM50,000 RM60,000 RM70,000 RM80,000 RM90,000 RM100,000
AverageValue
Source. HIS 2007.
Graph 1. Wealth decomposition by asset classes in Malaysia in 2007.
Wealth was better distributed compared to real estate assets or

financial assets, at least for the bottom 40%, but not when compared
to the income distribution (Table 1). The financial asset holdings
distribution was the worst, followed by wealth, property assets, and
income. The bottom 40% had a cumulative share of 14.5% in income,
and slightly more than half of that amount in wealth, and zero in
financial assets. The top 20% controlled nearly all of the financial
assets (95%), while the corresponding figures for wealth, property
assets and income were about half of the total holdings. What this
means is that the majority of Malaysians had very limited financial
resources in relation to their normal consumption and expenditures.
The economic insecurity is alarming as the average of the Malaysian
household wealth sucient to sustain current expenditure in case of
income loss is 3.2 years, while for those at the bottom 40% it is 2.6
years, and the bottom 10% could not survive even one month. Unlike
most calculations that use financial wealth as measurement, we used
overall wealth because families could sell their houses if their income
fell to zero. However, if we measure using liquid assets, the average
77
IJMS 19 (1), 7386 (2012)

savings of a Malaysian household is enough to cover just 1.8 months
of monthly expenditure, while their financial assets could cover about
6 months of monthly expenditure.
Table 1
Distribution of wealth in Malaysia in 2007
Distribution of household
per capita
Top 20
Middle 40
Bottom 40
Wealth
52.1%
39.9%
8.0%
Financial
assets
94.9%
5.1%
0%
Property
assets
50.9%
41.7%
7.5%
Income
49.8%
35.7%
14.5%
Source. HIS 2007.
The skewed distribution of wealth in Malaysia in 2007 was not as

extreme as compared to several developed countries a decade or
two ago (Table 2). For instance, the top 20% of the households in the
United States had 84% of the wealth, while the figures for Korea and
Sweden were 60% and 80% respectively. In fact, the share of wealth of
the top 20% of Malaysia was much lower than in other countries. The
distribution of wealth at the bottom 40% in Malaysia was better than
in the United States as in the latter, the bottom 40% had just 0.2% of
wealth, and 0% of financial assets (Wol, 1998, p. 6). Using household
balance sheet and survey data, Davies et al. (2008) estimated the level
and distribution of global household wealth and found that the top
10% of the world households control 71% of wealth, with a net worth
averaging USD 44,024 (in per capita purchasing power).
Table 2
International Comparison on the Distribution of Wealth for Top 20%
Country
Korea
Australia
France
Canada
Sweden
United States
Malaysia
Year
1998
1966
1975
1970
1975
1995
2007
Top 20%
60
54
69
74
80
85
52
Source. Davies, 1979; Harrison, 1979; Kessler and Masson, 1987; Shorrocks, 1987; and
Spant, 1987; in Leipziger, et al., 1992, p. 59.
Figure 2 for Malaysia is from HIS 2007.
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IJMS 19 (1), 7386 (2012)

Inequality
Consistent with other findings that show inequality for wealth is
higher than income, the Gini coecient for wealth in Malaysia in 2007
was 0.5182, higher than the Gini for income which stood at 0.441. In
terms of assets, the Gini for financial asset was the highest at 0.90,
followed by real estate at 0.521. However, the wealth Gini coecient
for Malaysia was lower compared to the Gini coecient of global
household wealth, and much lower compared to other developed
countries in the last one or two decades (Table 3). In fact, the figure for
Malaysia was the lowest compared to the rest of the countries listed in
Table 3. Malaysias distribution of wealth and its inequality is not an
outlier or extreme to that of other countries.
Table 3
International Comparison on Gini Coecient in Wealth
Country
World
USA
France
Germany
Canada
Italy
Sweden
Korea
Japan
Malaysia
Year
2008
1998
1986
1998
1984
1987
1985
1988
1984
2007
Gini-coecient
0.8
0.76
0.71
0.69
0.69
0.6
0.59
0.58
0.52
0.52
Sources. Davies & Shorrocks, 2000; Table 1, and Davies et al., 2008; Shapiro and Wol,
2001, p.17.
Future Prospects
The new economic model NEM- has set the objectives for Malaysia
to be a high-income country by 2020, with an average income per
capita of USD 15,000. Nevertheless, the NEM document seems
ambiguous, as it sometimes emphasizes market-oriented approaches,
and sometimes underplays the need for state intervention to nurture
specific industries. A more definite two-pronged state/private
sector strategy would therefore be essential. The market-oriented
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IJMS 19 (1), 7386 (2012)

policies advocated in NEM will likely increase inequality, as it lacks
equalizing policies (e.g. minimum wage, cash transfers, employment
creation etc). The emphasis on opportunities, and not outcomes, as
stated in the NEM document, would perpetuate inequality, which
will directly make the NEM exercise a contradiction to its own stated
objectives. It is important to look at outcomes to allow for hidden
and past inequalities in opportunities. In addition, the NEM seems
less inclined to set targets for its objective, perhaps in consideration
of the problems of target-settings, but such targeting can help in
monitoring and policy reforms, like the United Nations Millennium
Development Goals (MDGs). It is helpful to consider the national
target for poverty, inequalities and the bottom 40%.
Apart from the NEM, several other factors would widen the wealth
gap, namely the tax structure, the jump of asset prices, and changes in
education policy. The tax structure in Malaysia favours the rich more
than the poor, and is contributing to the widening wealth gap. In
property assets, previously, the real property gains tax is progressive
from zero to 30%, depending on the holding period of the property,
but this tax was put on hold from 1 April 2007. Eective 1 Jan 2010,
the real property gains tax is 5% irrespective of the property disposal
year. In addition, an exemption to the real property gains tax is given
to the sale of a residential property for the first time and transfer of
properties among family members. As inheritance play a major role
in perpetuating inequality and asset accumulation, the exemption on
the transfer of properties inter-generational, regardless of the property
value, would increase the gap of inequality between the rich and the
poor. In addition, monies received as death gratuity is also 100% fully
exempted from income tax. Basically, the current tax structure would
mean that an average salary earner who has an income of RM100,000
will have a marginal maximum tax rate at 26% (at the same rate as
those who earned RM1 million or RM 10 million), the rich person
who has a property gain of RM100,000 is taxed at 5%, while the
capital gain tax from financial investment interest of the same amount
will not be taxed at all. The structure and evolution of taxation in
Malaysia is therefore threatening the distribution of wealth, where
the trend appears to be helping in widening the disparity between
the rich and the poor. The poor or middle class Malaysians, who have
limited sources of income from financial assets or real estate assets
have to pay higher tax compared to the rich, whose income mostly
come from non-labour sources. The poor and the middle class seem
to be taxed much more heavily than the rich, as their interest income
and dividend are not taxed.
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IJMS 19 (1), 7386 (2012)

The sharp rise in housing prices, as well as other assets, over the last
few years in Malaysia can only exacerbate the wide gap between the
rich and the poor. We have shown that real estate contributed the most
in the wealth composition compared to other asset classes, and thus
the ownership of real estate, especially a house, played a major role in
wealth holdings. The property value in Malaysia has been increasing
beyond the aordability of the average Malaysian wage earners. An
average terraced house that sold for RM75,000 in 1988 is now valued
around RM191,000 - an increase of 155% over two decades (Ministry
of Finance, 2009). The prices are much higher in main towns and
urban areas such as in Kuala Lumpur, Johor Baharu and Georgetown,
Penang. In comparison, the latest figure shows that the wage trends in
Malaysia indicated a mere 2.6% growth annually for the past 10 years,
while inflation grew at much higher rate during the same period.
The housing price is becoming more and more beyond the means
of average Malaysians, especially for those living in the urban areas.
A study prepared by the Urban Development Authority found that
even the cheapest Malaysian public low-cost housing unit is beyond
the means of at least 80% of the lower income group of the urban
population (Lim, 2001). The high property prices and increasing cost
of living, compounded with lower income growth rate would impede
the ability of the poor, especially the urbanites, to purchase and own
houses or property asset.
Another factor that will widen the wealth distribution is the changes
in education policy, namely in the liberalization of higher education.
According to a report by the Ministry of Higher Education, as
published in the 10th Malaysian Plan (2010), some 50% of public
funds for higher education will be disbursed based on the needs of
the government by 2015, and 25% of all public university places will
be fee-paying seats. Currently, the government subsidizes all seats
in public institutions of higher learning at the rate of 90%. Students
only have to pay a relatively smaller fee for critical courses compared
to those in private institutions. This is made possible because the
government subsidized nearly RM8.5 billion a year in order to
maintain these low tuition fees. However, it is predicted that by 2020
as many as 90% of higher education students will have to go through
a private institution to obtain their degrees. The implications of the
changes in the education policy will aect the poor the most. As about
60% of Malaysians have zero financial assets, the financial constraints
are making it harder for these parents to finance the education of
their children. In addition, the meritocracy system is penalizing the
rural and poor students as they lack better schools, infrastructure
and teachers while the urban students have the better facilities and
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IJMS 19 (1), 7386 (2012)

infrastructures. The poor students who are discriminated in the
admission process have limited opportunity in gaining admission
compared to the relatively well-equipped rich urban students. Unlike
the rich students who could aord to enrol in private institutions, the
poor have nowhere to go as the higher cost of tertiary education in
private colleges or universities is a serious obstacle. The result will
be the share of the poor acquiring higher education will probably
decrease relative to the rich. The trend will be getting worse, as the
10th Malaysian Plan indicated that the Malaysian government does
not plan to build anymore public universities, while the private sector
will not be prevented from expanding or setting up private higher
education institutions.
Conclusion
Many approaches are potentially viable when considering ways to
improve asset or wealth accumulations, especially for households
that have constraints in starting to generate wealth. These may
range from regional development strategies to reduce the eects
of race and class segregation, job trainings to increase income from
earnings, boosting employment, and incentives to assist families in
building wealth through asset accumulation. In Malaysia, several
policies could be implemented in order to reduce the disparity gap
between ethnicity and between income classes. Several ideas have
been proposed. Ragayah (2009) proposed more focus on education,
mainly in assistance and conducive eco-system for students from
the rural areas, increase the income of the poor and of the bottom
households, re-stressing on rural developments, more involvement
from the government, restructure taxation, and caring society. The
Malaysia National Economic Advisory Council (NEAC), in their
New Economic Model (NEM) report issued in 2010, suggested that
the government should widen the social safety net and restructure
the armative action from ethnic-based to need-based for the bottom
40% of households (National Economic Advisory Council, 2010).
CMI (2005) suggested, among others, reform in basic schooling,
introducing child grant, upgrading productivity in agriculture
sector, and anti-discrimination policies in order to reduce the
economic disparity. Other proposals included the need to promote
asset acquisitions among those at the bottom of the social structure
who have been locked out of the wealth accumulation process. The
focus is on facilitating savings and the accumulation of assets for low
income families and the poor who usually fall outside of traditional
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IJMS 19 (1), 7386 (2012)

asset building opportunities. Additionally, the massive concentration
of wealth that is held by the richest Malaysians must be addressed.
Without redistributing the wealth, the creation of just and harmonious
society will never be achieved.
Inaction in addressing the wealth gap is a recipe for disaster. Correct
and immediate policy changes are required to address this unjust
imbalance, as not only that it is unfair and detrimental to economic
growth and well-being, but also will create divisions and strain
relations amongst the people, and could tear the country apart.
Unless bold and drastic actions are taken soon, a harmonious future
for Malaysia is uncertain. There must be an urgency to give every
Malaysian economic security, for better and sustainable futures that
are essential for a stable, harmonious and a prosperous society.
End Notes
1.
2.
3.
4.
5.
6.
Horizontal inequality is the inequality between groups - such as

citizenship, race, ethnicity, religion, gender, region, and others.
Vertical inequality refers to inequality between individuals or
households with respect to income, consumption and asset.
Vertical inequality can be decomposed into two elements:
between group inequality and within group inequality.
In HIS, the interest and dividend income is coded as INCS 33
and INCS 34 respectively.
The code from HIS 2007 from imputed rent from owneroccupied house and rent from other houses and property are
incs22 and incs23 respectively. Incs23 includes both land and
house, but since we cannot isolate them, the sum of incs22
and incs23 is referred to as real estate. Otherwise, it could be
labelled as house and land separately.
The figures for the yields are from author conversations and
email correspondences with several Malaysian property
developers and reputable real estate agents. The exact yields
are not available from ocial reports.
Quantiles are a set of cut points that divide a sample of
data into groups containing equal numbers of observations.
Examples of quantiles include quintile (five groups), quartile
(four groups) and percentile (one hundred groups).
RM 1 = 0.25
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IJMS 19 (1), 7386 (2012)
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Wol, E. N. (1992). Changing inequality of wealth. The American
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Wol, E. N. (1998). Recent trends in the size distribution of household
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Wol, E. N. (2002). Inheritances and wealth. The American Economic
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Woodward, D., & Simms, A. (2007). Growth is failing the poor: The
unbalanced distribution of the benefits and costs of global
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IJMS 19 (1), 87114 (2012)
PRODUCTIVITY IMPROVEMENT IN THE

UTILIZATION OF DOMESTIC AND IMPORTED
INPUTS IN RESOURCE AND NON-RESOURCEBASED INDUSTRIES: 19832005
NOORASIAH SULAIMAN
ZAKARIAH ABDUL RASHID
KHALID ABDUL HAMID
Abstract
The focus of the study is to examine the improvement in productivity on
the utilization of intermediate input in resources and non resources-based
industries of the Malaysian manufacturing sector. Since improvement in
productivity can determine how well an input performed, our main interest
rests on whether there exists any discrepancy between the performance of
domestic and imported intermediate input. To undertake such an analysis,
we employed various publications of the Malaysian Input-Output Tables.
The input-output coecients of domestic and imported inputs were then
simulated by using the commodity technology model. It was anticipated that
three main findings could be obtained from this study. Firstly, non resourcesbased industries have shown that both inputs have a higher improvement in
productivity compared to resources-based industries. Secondly, this study
revealed that resource-based industries have improved productivity relatively
in the imported input used compared to domestic input. Thirdly, the number
of industries that were ecient in utilizing imported input was higher, both,
in resource and non resource-based industries. Results from this study show
that imported intermediate input are still important in the production of
manufactured products, even though many incentives have been given in
order to increase the eciency of the domestic input used.
Keywords: Productivity improvements, input utilization, resource and non
resource-based industries.
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IJMS 19 (1), 87114 (2012)
Introduction
Since the Malaysian independence in 1957, various economic
policies especially on import substitution was undertaken with the
intention to reduce the importation of goods which for the most
part comprised of material inputs. As such, the Import Substitution
Policy (19581967) was implemented in particular to reduce the
importation of goods mostly comprising of consumer goods, which
were produced by foreign companies in the country. The policy has
been subsequently followed by Phase II of the Import Substitution
Policy (19811985), emphasizing on the reduction of imported inputs
used in the manufacturing sector (Alavi, 1996). The specific policy
is exclusively undertaken to develop the local industry, especially
the Small and Medium scale Industries (SMIs) as well as at the same
time hand out incentives to foreign companies with the purpose to
encourage raising the utilization of domestically produced inputs. In
addition, the Investment Incentive Act (1986) gives away incentives
to foreign companies that utilize domestic inputs in their production.
In general, the combination of these eorts is hoped to increase
deployment of domestic inputs in their chains of production.
Thus, in supporting eorts to enhance the utilization of domestic
inputs, the Malaysian government in the course of the Sixth Malaysia
Plan (1991-1995), has entrusted a new institution known as the
Malaysian Industrial Development Authority (MIDA) to invigorate
the manufacturing sector especially by the use of resource and
non-resource-based industries (Malaysia, 1991). MIDAs industrial
strategy served as a conduit that reduces dependence on imported
material inputs and in turn encourages the use of domestic material
inputs. Implicitly, it works as a strategy in promoting the production
of domestic and exports, both local and foreign companies with
a high content of domestic inputs. The use of domestic inputs by
resource-based industries and non-resource-based industries is
actually supported by several factors. Primarily, the most important
factor is to increase the domestic value-added production in both
resource and non-resource industries. Furthermore, these industries
need to create intense linkage between economic sectors, especially
the manufacturing and agricultural sectors. In addition, these eorts
will create linkages between foreign and local industries, particularly
SMIs, and finally, domestic inputs use can improve deficit in the
current balance of payment at the most part by reduced dependency
of imported inputs.
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IJMS 19 (1), 87114 (2012)

Realising the above factors, the purpose of this paper is to examine
the relative eciency of domestic inputs and imported raw materials
used in industries of the manufacturing sector, which is classified
into resource and non-resource-based industries. Material inputs
or sometimes referred to as intermediate material inputs are major1
sources of inputs in the Malaysian manufactures. In pursuance of this
issue, one has to bear in mind that the utilization of domestic input is
associated with resource-based industries and imported input with
the non-resource based industries. The findings of this study show
which industrial base utilized the inputs of domestic and imported
eciently. In addition, this study also seeks to analyse which subsector of the manufacturing sector, that is classified into resources
and non-resource-based industries has more reliance on domestic
input or imported raw materials between the periods of study.
Therefore, the purpose of this paper is to examine productivity
improvement of domestic and imported inputs used among the subsectors of the manufacturing sector, which is classified into resource
and non- resource-based industries. This study uncovered findings as
to whether inputs were used productively or eciently. In addition,
this study also analysed which subsector of the manufacturing sector
significantly utilized more inputs during the phase of the study.
This paper is stylized into six sections initially beginning with the
introduction in section 1, followed by section 2 that discusses the
related indicators of the manufacturing sector that supports the issue
of the study as presented in section 1. Section 3 oers the theoretical
framework of the study. Section 4 outlines the model used in this
study, data collection and input-output aggregation process. Section
5 presents the results of the study and discusses its findings. Finally,
section 6 provides conclusions and some policy implications related
to the study.
Changes in Economic Structure

As clearly highlighted in Table 1, the importance of the agricultural
sector is shrinking in terms of its share from Gross Domestic Product
(GDP) and exports. In contrast, the manufacturing sector has gained
importance in terms of the average annual rate of growth, share in
GDP and percentage of exports. It should be noted that within the
agricultural sector, diversification had taken place thereby enabling a
reduction in the traditional importance of rubber exports in the 1970s
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IJMS 19 (1), 87114 (2012)

to palm oil, timber and cocoa in the 1980s and the 1990s. Similarly,
the importance of tin in the mining sector had been replaced by
the production of petroleum and gas. The share of manufacturing
compared to export has increased since 1970. As of 2000 to 2005, its
share had increased from 60.4% to more than 80.0%. Amongst the
manufacturing industries, the electrical and electronics sub-sector
has a contribution of more than 70.0% of Malaysias overall export
(Malaysia, 2006).
Table 1
Changes in Economic Structure, 1970-2005
Sector
Average annual growth rate (%)
Share of GDP (%)
2000-2005 1970 1980 1990 2000 2005
1970-1979
1980-1989
1990-1999
Agriculture
6.1
4.2
2.2
3.8
32.3
24.6
15.2
Mining
8.6
5.9
8.5
2.3
5.8
4.6
11.8
10.9 15.2
32.6 30.5
Manufacturing
16.0
8.8
12.1
4.2
12.3
19.2
24.2
Construction
9.1
2.1
11.9
0.4
4.5
4.8
3.6
Services
9.3
7.6
12.8
6.3
Share of exports (%)
45.0
46.8
46.4
8.8
3.3
3.1
48.3 46.2
1970
1980
1990
2000
2005
Agriculture
60.2
43.8
22.3
6.1
7.0
Mining
26.4
34.3
17.8
7.2
9.8
Manufacturing
12.2
21.1
59.3
85.2
80.5
1.2
0.8
0.6
1.5
2.7
Others1
8.7
Source. DOS (2006): Statistics-Time Series 2005; Bank Negara Report, various years
(share of export).
Note. Others include forestry.
The Performance of Export and Import

The role of foreign direct investment (FDI) has an undeniable marked
importance in the context of the Malaysian economy. It had actually
experienced substantial FDI inflows, especially in the manufacturing
sector. They have unfortunately been declining in a later period,
especially after China launched its world trade transition economy.
Despite the above, the amount of FDI inflows in Malaysia is still
higher compared to other ASEAN countries, with the exception of
Singapore. The United Nations Conference Trade and Development
reported that out of USD37.1 billion of FDI inflow into the South East
Asian region, Malaysia had received USD3.9 billion in 2005 (UNCTAD,
2006). As most FDI are involved in non- resource-based industries,
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IJMS 19 (1), 87114 (2012)

these industries contribute a high share of export of the manufactured
goods. For this reason, these industries can also be categorized as
export-oriented industries (see Appendix 1). As shown in Table 2,
non-resource-based industries registered a figure of 79.4% to the
manufacturing export, while resource-based industries exported only
13.9% in 2000. The share of export for non- resource-based industries
was also high in 2005, contributing 73.8%. The high contribution to
the manufacturing export implies that these industries are involved
in export-oriented industries. As such, the electrical and electronics
industry has only registered 65.7% of the manufacturing export in
1995 and increased to 72.5% in year 2000 (Bank Negara, various
years). The share of non-resource-based industries in contributing a
high percentage in the export of manufactured goods may show a
significant use of domestic and import based inputs.
For resource-based industries, since the majority of these sectors are
domestic-oriented markets, some of them however, are also exportoriented industries, such as rubber, wood product, paper product and
plastic product industries (see Appendix 2). Therefore, it is important
to analyse the utilization of the domestic intermediate input, which
shows that resource-based industries are expected to create a higher
value added for the manufacturing products. For resource-based
industries that are export-oriented market, these industries are able
to maximize the output potential produced and a high use of the
domestic input content in export may reduce a high deficit in current
account balance.
Table 2
Share of Export in the Manufacturing Sector (%)
Type of industries
Resource-based industries
Non-resource-based industries
1981
25.1
74.9
1989
17.9
82.1
2000
13.9
79.4
2005
18.0
73.8
Source. Bank Negara Report (various years).
Table 3 shows that most of the intermediate goods imported are

industrial supplies such as metal, fuel and lubricants, parts and
accessories of capital goods (except transport equipment). These are
amongst the intermediate goods required as parts of material input
for the production of non-resource-based industries. The share of
intermediate goods in the gross import has increased over a period of
time from 1980 to 2000, which accounted for 45.5% and later increased
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IJMS 19 (1), 87114 (2012)

to 73.8%. In 2005 it decreased slightly to 71.0%. The trend of reduction
in the capital goods can be clearly seen in 2000 and 2005 which show
plunging performances of import shares from 15.1% and 14.0% in
both years respectively. Although the reduction of imported capital
goods and imported consumption goods has decreased at a later
period, it is most likely that a reduction in these two imported goods
has been replaced by increasing high shares of imported intermediate
goods. Bank Negara reported that heavy dependence on imported
raw materials and machinery in these exports has resulted in an
increase in the current account deficit by 5.9% of the GDP in 1997.
Substantially, as mentioned above most FDI concentrated on nonresource-based industries. This reflects one of the major problems in
the development of the manufacturing sector, that is, a rather weak
link forged with the domestic economy. The other major problem lies
in the narrow industrial base with the export of manufactured goods
concentrated in the electrical and electronics as well as the textile sectors.
Table 3
Share of Imported Goods, Real GDP Growth and Trade Indicators for
Malaysia, 1980-2005 (%)
1980
1985
1990
1995
2000
Capital goods1
37.5
31.2
35.5
41.6
15.1
2005
14.0
Intermediate goods2
45.5
46.8
41.5
40.8
73.8
71.0
Consumption goods
5.7
18.0
21.0
21.9
16.5
5.6
Dual-use goods
..
..
..
..
2.0
2.6
Others
..
..
..
..
1.5
1.7
2.0
0.7
1.1
1.1
2.0
5.0
Import for re-exports

Real GDP growth rate3 (%)
Average real growth rate
Trade balance (RM Million)
Current account balance (RM Million)
Current account (as % of GDP)
Import (as % of export)
7.4
-1.1
1980-1989
4.8
5.2
8.9
-0.6
-1.7
-1.2
-1.9
81.3
77.1
9.0
9.8
1990-1999
7.3
7.1
0.2
-2.5 -18.7
-2.1
-9.7
90.7
99.9
8.8
5.2
2000-2005
5.2
79.1 125.6
32.0
75.7
9.4
14.8
78.8
76.7
Source. Share of imported goods are obtained from Bank Negara Report (various
Years); real GDP growth and trade indicators are obtained from DOS (2006): Malaysia
statistics-time series, 2005.
Note.
1
capital goods [capital goods (except transport equipment), industry equipment and
transport equipment];
2
intermediate goods (food and beverage mainly for industry, industrial supplies,
metal, fuel and lubricants, parts and accessories of capital goods (except transport
equipment).
3
real GDP growth: 1980-1985: 1978=100; 1990-2005:1987=100.
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IJMS 19 (1), 87114 (2012)

Unrestrained and high importation of raw materials for the chains of
production in non-resource-based industries can exert pressure on a
countrys current account. In fact, deficit in current accounts has been
a major concern particularly since imported raw material creates huge
leakages and heavy financial burden in terms of acquiring machines,
parts and technology. Although trade account balance was surpluses
from 1985 to 2005, Malaysia experienced a continuous deficit in its
current account balance from 1985 to 1995 (see Table 3). The surplus
in the current account balance is only exhibited in a later period
1998. Moreover, the current account deficit has increased 2.1% in
1990 to 9.7% in 1995. Total import as a percentage of total export
had recorded above 75.0% over the period of 1980 to 2005, where
the highest amount of total import as a percentage of total export
accounted for 99.9% in 1995. The events of import and export increased
parallel to export. Since the manufactured goods contributed a large
amount of Malaysias export, export of the manufacturing sector may
reflect a high content of imported raw materials. As shown in Figure
1 and Figure 2, only two subsectors of the resource-based industries
indicated an imported input which used more than 50%, while four
subsectors were observed in the non- resource-based industries.
These are the subsectors of chemicals and other chemical products
for resource-based, and the subsectors of basic metal products, nonelectrical machinery, electrical machinery and motor vehicles for nonresource-based industries.
100%
80%
60%
40%
20%
0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Share of domestic input
Share of imported input
Resource Based-Industries
Figure 1.
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IJMS 19 (1), 87114 (2012)

The total average shows that resource-based industries registered
more than 60.0% of the share of the domestic input and less than 40.0%
of the imported input, except in 1991. In contrast, non-resource-based
industries have shown less than 50.0% of the domestic input and more
than 50.0% of the imported input used (see Appendix 2). This implies
that resource-based industries are actually sourced by domestic
inputs, while non-resource-based industries rely on the imported
input and the FDI in Malaysia concentrated on non-resource-based
industries.
100%
80%
60%
40%
20%
0%
1
Share of imported input
Share of domestic input
Non Resource Based-Industries
Figure 2.
Source. Malaysian Input-Output Tables 2005.
Figure 1 and 2. Share of domestic and imported inputs used among

subsectors of resource-based industries, 2005.
Theoretical Framework
The above relative eciency appraisal relates to the testing of the new
growth theory especially by proponents who were once popularly
headed by Kaldor. He analysed the factor of production from the
viewpoint of how resources contribute towards output in the economy.
Kaldor debated that in many areas manufacturing industries work
faster than agriculture as assumed in the embodiment theory that
both the physical and non-physical elements work in combination to
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IJMS 19 (1), 87114 (2012)

the increase in output. In the productivity theory, the eciency of
the factor of production is related to the concept of eciency. While
productivity is the amount of output produced relative to the amount
of resources used, eciency is the value of output relative to the costs
of inputs used. A change in price of inputs might lead a firm to change
the mix of input used, in order to reduce costs of input used, and
improve eciency, without actually increasing the quantity of output
relative to the quantity of inputs. A change in technology, however,
might allow the firm to increase output with a given quantity of
inputs; such an increase in productivity would be more technically
ecient, but might not reflect any change in eciency in terms of
allocation.
The Input-Output Model
In this study, the computations of the technical coefficient are

adopted from the commodity technology model (CTM). Unlike
other conventional models, is the well-known one proposed
by Leontief (1953). The model uses a single table of the inputoutput matrices. The transaction table2 in the conventional model
presumes that commodities and sectors are classified in the same
way. Thus, the technical coecient of the model is called the direct
technical coecient,
(i)
where xij = inputs from sector i to produce outputs in sector i;

xj = total inputs of sector j which is equal to the total
outputs in the j throw of the input-output table.
By using the CTM model, this model employs the basic table of the
input-output matrices, which provides a compatible procedure with
a modern input-output table. The uses of basic tables separated into
two subtables consist of the supply and use tables (SUT), which
have been suggested by many authors (Raa and Kop Jansen, 1990;
and Viet, 1986). The model suggests that sectors have a multitude of
inputs to produce an output. Therefore, the separate table of input
and output matrices that already exist in the SUT need not be forced
into the single matrix, meaning that the multiplication of use and
make matrix will result in a symmetric table. Therefore, SUT can be
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IJMS 19 (1), 87114 (2012)

used directly in the analysis of input-output (Raa, 2004). Moreover, it
is preferable to have raw use and make matrices separate without
purified or otherwise manipulated industries.
The technical coefficients, Ac, of CTM, employs supply and use

tables (SUT), as presented in equation (ii).
(ii)
where u denotes use table and,

u denotes supply table.
The use table is also known as the input matrix, which shows the
consumption of intermediate input by industries and the supply
table is known as the output or make matrix3. In the system of
National Accounts, the use table matrix records the inputs used by
industries, where uij shows the total input of commodity i consumed
by industry j. The make matrix records primary and secondary
products produced by each industry, where uij shows the total output
of industry i producing commodity j. In other words, commodity j is
produced by industry, i (Raa and Wol, 1991).
where = is a matrix
= is a matrix
From equation (ii), we can get equation (iii) as:
(iii)
If the use table matrices represent dimension products by industry

and the make table highlights dimension industries by products
matrices, then vt (transposed) would have dimension products by
industry. The input-output coecient, postulate proportionality
between inputs collected from the use table, while the output
collected from the supply table needs to be transposed. In solving
equation (iii) in the matrix operation, we obtain the technical
coecient derived from CTM (Raa, 2004) as:
(iv)
where t and 1 resents the combined operations of transposition and

inversion of the indicated matrix, and;
c denotes commodity technology model.
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IJMS 19 (1), 87114 (2012)

By employing CTM, a best selection from all the models in the
computation of technical coecients, fulfils all axioms of the inputoutput analysis (Raa, 2004). The choice of the model is made on the
basis of reasonable assumptions. This model has an assumption that
each commodity has a unique input structure, irrespective of the
sector of fabrication. The number of activities must equal the number
of commodities. This model also assumes that each commodity is
produced by the same technology, irrespective of the production
of industry. In this case, industries are considered an independent
combination of output in sector j and each with their separate input
coecients.
In this study, U matrix, which is referred to input matrices are classified
into two. These are domestic input matrices, (Ud) and imported input
matrices, (Um). Changes in input coecients for each input, domestic
and imported input, can be presented as in equation (v).
Change in input coecients:
(v)
where Acij = change in input coecients;

acij = input coecients from sector i to sector j or the intermediate
inputs of the i th sector used by the j th sector, (i,j = 1,2,3,...,n);
t1 and t0 = the terminal year and the initial year.
Equation (3) estimates changes of domestic and imported inputs used
to produce one unit of output relative to the time, which is referred to
the sub-periods of the study. Both changes in domestic and imported
input used can measure eciency of the respective input used to
produce one unit value of output. This shows the requirements of the
input from sector i used in sector j in order to produce one ringgit value
of output, j. Therefore, from column-wise of the matrix, A, presents
the amount of input required to produce one unit value of output
in Malaysian ringgit. The input coecient also reflects unit cost per
ringgit of output. The results of the change in input coecients are
expected to be both in terms of positive and negative signs. In general,
a negative sign shows an improvement in productivity of the input
used. This also means that the input is utilized eciently. On the
other hand, the positive sign presents a contrasting sign of the input
coecients, revealing deterioration of productivity. Furthermore,
change in input coecients both for domestic and imported input
is weighted by output to obtain weighted average of proportionate
change in input coecient of each sub-period of the study.
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IJMS 19 (1), 87114 (2012)

Weighted average of proportionate change:
where dQj = total output of industry, j; and,
(vi)
dQj = grand total output of industry, j.

Data Sources and Input-Output Aggregations
This study employs data from the Malaysian I-O Tables for 1983,
1987, 1991, 2000 and 2005 published by the Department of Statistics,
Malaysia. This study is classified into sub-periods of 1983-87, 1987-91,
91-2000 and 2000-05. The basic table of the Malaysian I-O is utilized,
which includes the basic table of domestic input, imported input and
output matrices. The basic table of imported input is obtained from
the dierences between the basic table of the total input and the basic
table of domestic input matrices.
The existing framework of national account has governed the potential
maximum size of the Malaysia I-O tables. However, due to the scopes?
of this study that only focus on the manufacturing sector, this study
has reduced the I-O tables into 32 by 32 industries/commodities.
This encompasses all 31 industries of the manufacturing sector and a
single sector is representing other sectors which includes services,
agriculture, mining and construction, and the rest of the public sectors.
Results and Discussion

Based on the classification in Appendix 1, resource-based industries
comprise of 22 subsectors of the manufacturing sector, while nonresources-based industries consist of 9 subsectors. In this study, the
results of productivity improved to produce one unit value of output
measures eciency in the input used both for domestic and imported
inputs. As shown in Table 4, for non-resources-based industries, it
was found that productivity improved relatively higher compared to
resources-based industries when using domestic intermediate input
which is indicated by 40.1% and 35.5% during the sub-periods 1983
87 and 19871991, respectively. The result is similar in the case of
imported intermediate input use, which is non-resource based which
also indicated a high percentage of productivity improvement. These
are at the amounts of 50.4%, 25.3% and 367% during the sub-periods
19831987, 19871991 and 19912000, respectively.
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For resource-based industries, this study revealed that the
productivity improved relatively higher for imported input compared
to domestic input used. This accounts for 22.6% and 19.5% during
the sub-periods of 19831987 and 19912000. For the sub-period of
19871991, these industries registered a lower percentage of
productivity improvement, which was only 0.7% for domestic
input used and 14.7% for imported input. The lower percentage of
improvement during this sub-period is due to the emerging economy
from the 1985 recession. The recovery of the economy can be seen
from the percentage increase in the productivity improvement
both in the domestic and imported input used in the sub-period of
91-2000.
During the sub-period of 20002005, resource-based industries
indicated 12.9%, while non-resources- based industries accounted
for 12.7% of productivity improvement in domestic input use. The
finding shows that the resource-based industries have a lower
productivity improvement in domestic input use among the
subsectors. In contrast, the number of subsectors in resource-based
industries is actually larger than the subsectors of non-resource-based
industries. For imported input, both industries have shown that the
percentage decreased to 2.7% and 2.4% respectively for resource
and non-resource-based industries. This was lower due to the global
economic slow-down during the period 2000 until 2005, and the use
of imported input in resource-based industries dropped from 38.4%
to 22.0% (see Appendix 2).
In terms of total input, non-resource-based industries indicated
46.1%, 32.9% and 30.0% during the sub-periods of 19831987,
19871991 and 19912000, respectively. Resource-based industries
indicated 13.0%, 8.0% and 14.3%, respectively. These are relatively
lower than non-resource-based industries. The lower percentage for
resources-based industries highlights that these industries still have
room for improvement especially in terms of domestic input use.
The improvement of domestic input will increase the value-added of
the domestic input content. Meanwhile, local industry produces less
wastage in domestic resources and will also reduce dependency on
non-resource-based industries when using domestic input. However,
for the sub-period of 20002005, the percentage of productivity
improved in imported input use by only 4.3% for non-resource-based
industries and 6.7% for resource-based industries.
99
100
40.1
22.2
22.6
50.4
37.0
13.0
46.1
Weighted average in resource-and non-resource- based industries
Weighted average in resource-and non-resource- based industries
Weighted average in resource-based industries
Weighted average in non-resource-based industries
Note. total input = domestic + import.
Source. Appendix 3.
19.7
19831987
Industry
Productivity Improvement by the Input Use (%)
Table 4
19912000
17.2
6.0
10.2
32.9
8.0
20.2
25.3
14.7
30.0
14.3
Total input
27.2
36.7
19.5
Imported intermediate input
20.6
35.5
0.7
Domestic intermediate input
19871991
4.3
6.7
0.7
2.4
2.7
13.1
12.7
12.9
20002005
IJMS 19 (1), 87114 (2012)
IJMS 19 (1), 87114 (2012)

Productivity improvement for both the domestic and imported input
can be related to a larger contribution that the intermediate input is
the major component of growth in TFP for the manufacturing sector.
This implies that the growth in TFP of the manufacturing sector is
dependent on input growth. In other words, growth in TFP is actually
led by the input driven economy. This might be true as other studies
found that the miracle of the East Asian economy may be characterized
by the `input-led growth (Krugman, 1994; Young, 1994b; Kim &
Lau, 1994). These studies revealed that the Korean economy catchup process with the industrial nations in its late industrialization has
been predominantly input-led growth. Past studies on growth with
respect to Malaysia also conclude that the input growth, particularly
intermediate input, makes a larger contribution to the output growth
(Okamoto, 1994; Maisom, Mohd Ari & Nor Aini, 1993; Tham, 1996;
1997 & Noriyoshi et al., 2002).
The larger contribution of intermediate input to growth in
manufacturing output was also obtained in several other studies.
Tham (1996) found that, in general, the average value shares of
intermediate input in the Malaysian manufacturing output growth
between 1986 and 1990 were the highest among all the inputs. Tsao
(1985) also found the same results for Singapore between 1970
and 1979, where the average value shares of intermediate input in
the output growth were the highest among all inputs. Similarly,
Nishimizu and Robinson (1984) also indicated the same results for
Japan between 1955 and 1973, Korea (19601977), Turkey (19631976)
and Yugoslavia (19651978). In the same way, Gan et al., s (1993) study
on the Singaporean manufacturing sector yielded a similar result, in
which the major source of growth of output between 1986 and 1990
was the growth in material input. Moreover, in all these studies, input
growth has contributed relatively more to output growth.
Table 5 shows the number of subsectors ecient in domestic and
imported input used amongst industries of resource-and-non
resource-based industries over four sub-periods of the study. Nonresource-based industries show that the percentages of the subsectors
with had relatively improved productivity in domestic input used
accounted for 70.0%, 80.0%, 40.0% and 88.9%, while imported input
accounted for 80.0%, 60.0%, 80.0% and 11.1%, respectively. The
findings show that non-resource-based industries are rather ecient
in using both domestic and imported input during the study, except
for the imported input in 20002005.
101
IJMS 19 (1), 87114 (2012)

In the case of resource-based industries, imported input indicated
that about 85.7% of the subsectors improved, respectively for the subperiods of 19831987 and 19912000. The results show that the number
of subsectors improved in imported input use is relatively larger than
the others, even though the share of imported input use indicates less
than 40.0% of the total input4 (see Appendix 2). The percentage of
subsectors that improved in domestic input use accounted for 38.1%,
52.4% and 47.6% during the sub-periods of 19831987, 19871991
and 19912000, respectively. During the three sub-periods, this study
implies that the percentage of subsectors improved in domestic input
use is relatively low, even though the average share of domestic input
use among the subsectors is relatively high with more than 60% of the
total input. However, the percentage increased to 81.8% for the subperiod of 20002005. The improvement in productivity in domestic
input use can be seen in processed rubber, rubber products, furniture
and fixture, other chemical products and plastic products industry
(see Appendix 3). The increase in the percentage of subsectors
improvement in domestic input use implies that domestic input
has gained improvement in productivity. The domestic input has
received priority among the manufacturers resource-based industry
in terms of utilization.
A previous study found that resource-based industries were more
export-oriented compared to the non- resource-based industries
during the period 19751994. In addition, almost 70 per cent of the
manufacturing industries were highly dependent on imported input
and almost of all these industries were non-resource-based (Alavi,
1999). The result also revealed that there was a positive relationship
between export share and imported input content for the nonresource-based industries. In contrast, the relationship was negative
for the resource-based industries. Surprisingly, the findings show that
domestic-oriented industries were generally more highly dependent
on imported inputs compared to the export-oriented industries.
The following figures, from Figures 3 to 5 exhibit subsectors of
resource-and non-resource-based industries in domestic and imported
input use improved in productivity if located in the lower side of
the horizontal line. For the sub-period 19831987, most subsectors
of resource-based industries were relatively in the position of the
improvement area, while this occurred for resource-based industries
in terms of imported input use. The resources-based industries have
relatively improved in domestic input use during the sub-period of
19871991. This can also be seen in non-resources-based industries
for imported input use. The improvement in domestic input use for
the period 19871991 may be due to the economic recession in 1985.
102
8 (38.1)
13 (61.9)
7 (70.0)
3 (30.0)
Non resources-based industries

Number of sub-sectors
improved
less improved
Source. From Appendix 3.
8 (80.0)
2 (20.0)
11 (52.4)
10 (47.6)
4 (40.0)
6 (60.0)
10 (47.6)
11 (52.4)
9 (88.9)
1 (11.1)
18 (81.8)
4 (18.2)
8 (80.0)
2 (20.0)
18 (85.7)
3 (14.3)
6 (60.0)
4 (40.0)
5 (23.8)
16 (76.2)
8 (80.0)
2 (20.0)
18 (85.7)
3 (14.3)
1 (11.1)
9 (88.9)
4 (18.2)
18 (81.8)
19831987 19871991 19912000 20002005 19831987 19871991 19912000 20002005
Resources-based industries
improved
less improved
Type of industry
Number of Subsectors Improved by Input Use (%)
Table 5
IJMS 19 (1), 87114 (2012)
103
IJMS 19 (1), 87114 (2012)

For the sub-period of 19912000, both industries have shown that
imported input use relatively improved than domestic ones, which
is similar to the first sub-period of the study. On the other hand,
both industries have experienced domestic input use that relatively
improved compared to imported input during the sub-period of
20002005. The substantial progress shows that domestic input is
used eciently in both industries, though the content of imported
input has remained at 40.0% for resource-based and 50.0% for nonresource-based industries. These are contributed by a majority of the
subsectors in the resources-based indutries, except beverages, wood
products, paper and printing, and paint and lacquers industries. A
similar contribution can be seen in most industries of non-resourcebased industries, except textiles (see Appendix 3).
0.400
0.300
DRB
0.200
MRB
0.100
DNRB
0.000
-0.100
MNRB
-0.200
-0.300
-0.400
-0.500
-0.600
Figure 3. Distribution of subsectors in resource and non-resourcebased industries in domestic and imported input used, 19831987.
0.600
0.400
0.200
DRB
MRB
DNRB
MNRB
0.000
-0.200
-0.400
-0.600
-0.800
104
IJMS 19 (1), 87114 (2012)
0.600
0.400
0.200
DRB
MRB
DNRB
MNRB
0.000
-0.200
-0.400
-0.600
-0.800
0.600
DRB
0.400
MRB
0.200
0.000
DNRB
MNRB
-0.200
-0.400
-0.600
-0.800
-1.000
Source. Appendix 3.
Note. DRB = domestic input of resource-based industries; MRB = imported input
of resource-based industries; DNRB = domestic input of non-resource-based
industries; MNRB = imported input of non-resource-based industries. A negative
area shows improvement in productivity in the input use and vice-versa.
105
IJMS 19 (1), 87114 (2012)
Conclusion and Policy Implications

Based on the study, there are three main findings that need to be
highlighted in this paper. Firstly, this study concludes that, nonresources-based industries have shown a higher percentage of
subsector improvement in using domestic and imported intermediate
inputs. Secondly, for resources-based industries, it shows a high
percentage of productivity improvement in the imported input
use, while domestic input use is rather low during the first three
sub-periods of the study. This actually reflects that resource-based
industries are relatively less ecient in using domestic inputs
compared to imported input use. Resource-based industries have
shown productivity improvement in imported input use, but not for
domestic input. Thirdly, the number of industries that improved in
using imported input is higher, both, in resources-and non-resourcesbased industries. This indicates that both resource-and non- resourcebased industries have used imported input more productively.
Meanwhile, resources-based industries do not show the use of
domestic input eciently.
The three main results of this study indicate that, firstly, non resourcesbased industries rely substantially on imported raw materials. Heavy
reliance on the imported raw materials will have an adverse eect on
the countrys Balance of Payments. As reported by the Annual Report
of Bank Negara (2005), imported raw materials constituted 20% of the
total raw materials utilized in resource-based industries while in nonresources-based industries it can be as much as 60%. Most leading
firms of the non-resource-based industries are actually multinational
companies of FDI. Thus, there is no surprise that these leading firms of
non-resource-based industries of electronics and electrical machinery
have particularly a high content of imported raw materials, as high as
70%. It is also interesting to note that the share of our economys total
export by non-resource-based industries is phenomenal (more than
70.0%) compared to that of resource-based industries hovering less
than 20.0% (Bank Negara, 2006). The over dependence on imported
raw materials is normally a characteristic of multinational companies
operating in the host countries, engaging in processing industries
which import unfinished components and export finished products
(Tsao, 1985). This results in weak linkages between indigenous
industries and foreign companies, In contrast, linkages within the
multinationals network of plants located throughout the world tend
to be stronger.
106
IJMS 19 (1), 87114 (2012)

Secondly, the number of subsectors relatively ecient in resourcebased industries in terms of domestic input use is smaller than
imported input over the period of the study, and it shows an increase
in a later period of the study. At the same time, non-resource-based
industries have also shown an increasing trend in terms of the number
of subsectors relatively ecient in using domestic input. In contrast,
both resource-and non-resource-based industries have shown a higher
number of subsectors, which is relatively ecient in using imported
inputs. The local sources of domestic input may be due to resourcebased industries which did not use domestic input as productively as
imported input, thereby leading to the probable underutilization of
domestic input and non-resource-based industries which are highly
dependent on imported input.
Thirdly, in resource-and non-resource-based industries, imported
raw materials are used more eciently than domestic raw materials,
in terms of the number of industries ecient over the period of the
study. On the other hand, in resource-based industries domestic raw
materials are not used eciently as well as imported raw materials. It
is interesting to note that although resource-based industries sourced
their material inputs domestically, the Malaysian manufacturers
utilize their minor material inputs more eciently than their major
ones. The production of the manufacturing sector implies that
Malaysian manufacturers did not utilize domestic input in ecient
ways due to having substantial sources of local input. In contrast,
multinational companies have shown eciency in both domestic and
imported input use in their production.
End Notes
1.
2.
3.
4.
Zainal Aznam Yusof and Phang (1994) demonstrated that the

largest component of cost in the Malaysian manufacturing
sector was the cost of raw materials.
Transaction table refers to the table of intermediate inputs.
Use matrix refers to the use of commodities by the producing
industry, and the make matrix shows the quantities of each
commodity made by each industry.
See Appendix 2 for more details of domestic and imported
input use in resources and non-resources-based industries.
107
IJMS 19 (1), 87114 (2012)

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S. (2002). Productivity of foreign and domestic firms in the
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109
110
Electrical and electronic products
Rubber products
Wood, wood products
Textiles, wearing apparel and leather
Petroleum products
Machinery and equipment
Scientific instruments
O-estate processing
Food products, beverages and tobacco

Paper and paper products
Plastic products
Chemical and chemical products
Transport equipment
Basic metals and fabricated metals
Non-metallic mineral
Note. These classifications are based on the EPU.
Source. Malaysia (2006).
Export-oriented industries
Textiles, wearing apparel and leather

Electronics
Basic metal industry
Metal products
Transport equipment
Manufacture of machinery
(except electrical)
Electrical machinery
Non-resources-based industries
Domestic-oriented industries
Vegetable, animal oils and fats

Other food processing, beverages and tobacco
Rubber processing and products
Paper and paper products, printing and publishing
Industrial chemicals, fertilizers and plastic products
Wood products including furniture
Petroleum products, crude oil, coal
Non-metallic mineral products
O-estate processing
Resources-based industries
Appendix 1: Classifications of Industries
IJMS 19 (1), 87114 (2012)
1. Meat and dairy products

2. Preserved food
3. Oils and fats
4. Grain mill products
5. Bakery, confectionary
6. Other foods
7. Animal feeds
8. Beverages
9. Tobacco
10. Wooden products
11. Furniture and fixtures
12. Paper and printing
13. Industrial chemicals
14. Paints and lacquers
15. Other chemical products
16. Petroleum and coal
17. Processed rubber
18. Rubber products
19. Plastic products
20. China, glass and clay
21. Cement, lime and plaster
22. Other non-metal mineral
1983
85.86
90.03
96.78
70.91
80.73
44.36
44.01
73.73
42.41
75.66
80.64
49.41
52.58
48.84
61.32
53.51
97.30
67.73
45.80
67.61
77.94
67.72
Domestic intermediate input (1)

1987
1991
2000
2005
84.53
80.81
73.99
69.5
86.81
88.09
70.16
70.5
91.54
93.76
92.00
94.0
72.88
60.46
68.83
66.5
83.41
81.03
53.62
96.1
50.00
45.80
67.81
73.3
44.74
32.58
30.99
82.9
68.24
69.25
50.87
94.3
58.64
51.18
38.47
99.5
82.05
82.72
84.21
77.5
77.75
51.73
54.43
66.2
47.33
44.19
59.87
95.2
75.71
46.42
61.97
45.7
47.07
41.48
60.59
71.5
55.21
42.59
56.57
34.0
70.88
86.46
61.94
76.0
97.58
97.63
85.35
98.6
67.67
59.49
53.85
85.2
37.58
48.88
38.71
74.9
68.13
64.46
66.04
62.9
74.41
81.59
67.10
93.5
77.81
70.73
70.76
90.8
Appendix 2: Share of Domestic and Imported Inputs, 19832005 (%)
1983
14.14
9.97
3.22
29.09
19.27
55.64
55.99
26.27
57.59
24.34
19.36
50.59
47.42
51.16
38.68
46.49
2.70
32.27
54.20
32.39
22.06
32.28
(continued)
Imported intermediate input (2)

1987
1991
2000
2005
15.47
19.19
26.01
30.5
13.19
11.91
29.84
29.5
8.46
6.24
8.00
6.0
27.12
39.54
31.17
33.5
16.59
18.97
46.38
3.9
50.00
54.20
32.19
26.7
55.26
67.42
69.01
17.1
31.76
30.75
49.13
5.7
41.36
48.82
61.53
0.5
17.95
17.28
15.79
22.5
22.25
48.27
45.57
33.8
52.67
55.81
40.13
4.8
24.29
53.58
38.03
54.3
52.93
58.52
39.41
28.5
44.79
57.41
43.43
66.0
29.12
13.54
38.06
24.0
2.42
2.37
14.65
1.4
32.33
40.51
46.15
14.8
62.42
51.12
61.29
25.1
31.87
35.54
33.96
37.1
25.59
18.41
32.90
6.5
22.19
29.27
29.24
9.2
IJMS 19 (1), 87114 (2012)
111
112
1983
67.84
60.92
64.91
42.96
64.49
53.25
48.05
30.39
27.82
26.43
48.53
49.27
1983
66.14
1987
70.75
62.26
57.27
38.22
67.62
51.71
45.53
20.94
40.77
44.86
34.52
48.60
1987
68.36
23.02
24.21
54.15
57.53
38.75
30.51
25.07
38.49
32.17
36.17
(1)
1991
71.47
56.77
1991
(1)
63.83
Note. Total input comprises column (1) and (2) of the respective years.
Source. Computed from Malaysian Input-Output Tables (various years).
Other sectors
Total average
Non-manufacturing
1. Textile products
2. Wearing apparel
3. Basic metal products
4. Other metal products
5. Non-electrical machinery
6. Electrical machinery
7. Motor vehicles
8. Other transport equipment
9. Other manufacturing
Average
Average
2000
64.28
55.53
46.76
49.00
37.25
47.99
18.88
25.25
46.03
32.00
41.43
41.86
2000
61.63
2005
86.2
70.5
54.5
64.9
40.1
71.7
28.9
31.2
46.7
53.8
57.8
50.0
2005
78.1
1983
32.16
39.08
35.09
57.04
35.51
46.75
51.95
69.61
72.18
73.57
51.47
50.73
1983
33.86
1987
29.25
37.74
42.73
61.78
32.38
48.29
54.47
79.06
59.23
55.14
65.48
51.40
1987
31.64
76.98
75.79
45.85
42.47
61.25
69.49
74.93
61.51
67.83
59.53
(2)
1991
28.53
43.23
1991
(2)
40.47
2000
35.72
44.47
53.24
51.00
62.75
52.01
81.12
74.75
53.97
68.00
58.57
58.14
2000
38.37
2005
13.8
29.5
45.5
35.1
59.9
28.3
71.1
68.8
53.3
46.2
42.2
50.0
2005
21.9
IJMS 19 (1), 87114 (2012)
1. Meat and dairy products

2. Preserved food
3. Oils and fats
4. Grain mill products
5. Bakery, confectionary
6. Other foods
7. Animal feeds
8. Beverages
9. Tobacco
10. Wood products
11. Furniture and fixtures
12. Paper and printing
13. Industrial chemicals
14. Paints and lacquers
15. Other chemical products
16. Petroleum and coal
17. Processed rubber
18. Rubber products
19. Plastic products
20. China, glass and clay
21. Cement, lime plaster
22. Other non-metals minerals
more ecient
less ecient
Weighted average of
proportionate change in resourcebased industries
Resource-based
industries
10 (47.6)
11 (52.4)
11 (52.4)
10 (47.6)
0.007
8 (38.1)
13 (61.9)
-0.197
-0.102
19912000
0.341
0.359
0.052
-0.019
-0.059
-0.226
0.316
-0.465
0.218
0.119
-0.164
-0.203
0.128
-0.314
-0.390
-0.364
-0.192
-0.223
-0.075
-0.463
-0.023
0.062
19831987 19871991
0.057
-0.448
0.146
-0.676
-0.016
0.150
0.002
-0.169
-0.212
0.208
-0.016
-0.026
0.016
-0.598
-0.035
-0.023
-0.107
-0.662
-0.184
0.119
-0.158
-0.398
-0.089
-0.020
-0.372
0.079
-0.052
-0.268
-0.122
-0.061
0.212
0.190
-0.443
0.498
-0.006
-0.052
-0.192
-0.257
0.046
-0.133
0.023
0.050
-0.091
-0.049
-0.129
18 (81.8)
4 (18.2)
5 (23.8)
16 (76.2)
0.147
-0.226
19871991
-0.468
-0.725
0.283
0.480
0.349
0.317
-0.526
0.421
-0.558
-0.246
-0.667
0.068
-0.166
-0.189
-0.152
0.237
-0.484
-0.010
-0.125
-0.202
0.285
0.112
18 (85.7)
3 (14.3)
20002005
19831987
-0.658
-0.106
-0.504
-0.116
-0.293
-0.040
-0.427
-0.061
-0.594
-0.255
-0.247
-0.096
-0.249
-0.033
0.335
-0.133
-0.762
-0.130
0.154
-0.257
-0.694
-0.209
0.454
-0.223
-0.284
-0.382
0.005
-0.122
-0.005
-0.075
-0.272
0.179
-0.285
-0.465
-0.020
-0.073
-0.265
-0.130
-0.304
0.065
-0.230
-0.083
-0.277
-0.040
-0.195
18 (85.7)
3 (14.3)
-0.027
4 (18.2)
18 (81.8)
20002005
0.292
0.216
0.149
0.186
0.329
0.124
0.126
-0.148
0.314
-0.074
0.322
-0.221
0.137
-0.002
0.003
0.107
0.141
0.009
0.110
0.141
0.106
0.128
(continued)
19912000
0.122
-0.055
-0.147
-0.073
-0.256
-0.004
-0.116
-0.253
-0.401
0.055
-0.287
-0.036
-0.032
-0.200
-0.387
-0.411
-0.076
-0.261
-0.311
-0.246
-0.083
0.036
Appendix 3: Relative Eciency of Domestic and Imported Intermediate Inputs, 1983-2005
IJMS 19 (1), 87114 (2012)
113
114
-0.069
-0.355
-0.401
-0.060
4 (40.0)
6 (60.0)
-0.013
-0.256
-0.127
9 (88.9)
1 (11.1)
2000
2005
0.388
-0.402
-0.070
-0.034
-0.185
-0.286
-0.368
-0.267
-0.206
-0.149
-0.504
8 (80.0)
2 (20.0)
-0.253
6 (60.0)
4 (40.0)
19871991
0.184
0.021
0.290
-0.054
-0.316
-0.407
-0.462
0.075
-0.124
-0.367
8 (80.0)
2 (20.0)
19912000
-0.065
-0.207
-0.037
-0.190
-0.684
-0.198
-0.256
-0.030
-0.129
0.141
-0.178
19831987
-0.212
-0.317
-0.165
-0.100
-0.160
-0.436
0.306
0.163
-0.362
Note. (1) and (2) estimated by average proportionate change.

(i) A negative sign shows improvement in eciency and vice-versa.
(ii) Figures in parentheses indicate percentage.
(iii) 1 Average proportionate changes of other sectors are equal to the weighted average of proportionate change of other sectors.
0.062
8 (80.0)
2 (20.0)
7 (70.0)
3 (30.0)
19912000
0.094
-0.001
0.081
0.121
-0.583
0.285
0.148
-0.219
-0.067

19831987
19871991
-0.120
0.019
-0.299
-0.094
-0.006
0.161
-0.051
-0.304
-0.166
-0.329
-0.388
-0.520
0.230
-0.490
0.279
-0.086
-0.322
-0.212
Source. (1) and (2) are estimated from equation (4).
Other sectors1
Non-manufacturing
1. Textiles
2. Wearing apparel
3. Basic metal products
4. Other metal products
5. Non-electrical machinery
6. Electrical machinery
7. Motor vehicles
8. Other transport equipment
9. Other manufacturing
Number of subsectors
more ecient
less ecient
Weighted average of
proportionate change in nonresource-based industries
Non-resource-based
industries
-0.132
0.024
1 (11.1)
9 (88.9)
-0.213
0.169
0.036
0.017
0.095
0.161
0.159
0.144
0.095
20002005
IJMS 19 (1), 87114 (2012)
IJMS 19 (1), 115133 (2012)
EFFECTS OF SUSCEPTIBILTY TO
INTERPERSONAL INFLUENCE ON CLOTHING
BENEFITS SOUGHT
SYADIYAH ABDUL SHUKOR
Faculty of Economics and Muamalat
Universiti Sains Islam Malaysia
Abstract
Susceptibility to interpersonal influence is the tendency of an individual
to be influenced by other people in their decision-making. Prior research
suggests that susceptibility to interpersonal influence aects various
numbers of consumer behaviours. This paper aims to investigate the eects
of susceptibility to interpersonal influence on clothing benefits sought, which
are: uniqueness, conformity, self-congruity, social status and modesty.
Data for the present study was collected through web-based and drop o
questionnaires. 222 completed questionnaires were received and analysed
using the Structural Equation Modelling (SEM). Results of this study
show that susceptibility to interpersonal influence is positively related to
uniqueness, conformity, self-congruity and social status. Limitations and
directions for future research are discussed towards the end of this paper.
Keywords: Susceptibility to interpersonal influence, clothing, clothing
benefits sought.
Introduction
The purpose of this research is to investigate the eects of
susceptibility to interpersonal influences on clothing benefits sought.
Consumer research has long argued that interpersonal influence is
an important determinant of consumer behaviours such as purchase
decisions (Bearden & Etzel, 1982), shopping behaviour (Mangleburg
et al., 2004) and investment decisions (Homann & Broekhuizen,
2009). The conclusion from these studies demonstrates that consumer
behaviours are subjected to consumer susceptibility to interpersonal
influence.
However, a number of shortcomings in the existing literature can
be identified. First, none of the study has addressed the eects of
susceptibility to interpersonal influence on clothing benefits sought.
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IJMS 19 (1), 115133 (2012)

Clothing benefits sought reflects the outcomes that clothing attributes
may provide (Park & Sullivan, 2009; Kinley, 2010) that satisfy
consumer needs (Foxall et al., 1998; Sheth et al., 1991). Consumers may
adopt or purchase certain clothing for its symbolic meaning (Levy,
1959) as a means of conveying certain attributes of the self to others
given that clothing is high in visual display and indicates something
about the user (Holman, 1980). As such, individual susceptibility
to interpersonal influence may aect consumer clothing benefits
sought. Therefore, this study fills the gap in the existing literature by
investigating the eects of susceptibility to interpersonal influence on
five selected clothing benefits sought; uniqueness, conformity, selfcongruity, social status and modesty in the context of shopping for
clothing.
Second, the impact of consumer susceptibility to interpersonal
influence on dierent groups of consumers has also been explored
in previous studies, such as students and housewives (Park & Lessig,
1977), teenagers (Mangleburg et al., 2004) and children (Achenreiner,
1997; Bachmann et al., 1993). Furthermore, most of the previous
research are North American in origin and application. To date, little
research has been conducted in a specific subcultural context in which
interpersonal influences make sense for consumers. Worldwide
immigration patterns of recent decades have led to the creation of
large ethnic minority subcultures in a number of Western countries
(Cui, 1997; Jamal, 2003). In the UK, the ethnic minority community is
diverse and the key ethnic minority groups (e.g. Indians, Pakistanis
and etc.) originate from collectivist cultures, such as India and
Pakistan (Jamal, 2003, see also Hofstede, 1981). People brought up
and raised in a collectivist cultural environment are likely to be more
aected by significant others (Hofstede, 1981, Mourali et al., 2005)
when making clothing choices. Therefore, this research explores the
role played by consumer susceptibility to interpersonal influence on
the buying behaviour of clothes among one of the fastest growing
ethnic subcultures in the UK, which is British Muslims.
This study develops a conceptual framework and reviews relevant
literature on consumer susceptibility to interpersonal influence
and clothing benefits sought when shopping for clothing. The
model informs the development of a number of hypotheses. The
methodology section provides the data collection procedure along
with measures adopted followed by a presentation of results. A final
section discusses findings and assesses implications and directions
for future research.
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IJMS 19 (1), 115133 (2012)

Susceptibility to Interpersonal Influence
Susceptibility to interpersonal influence is defined as the need to
identify with or enhance ones image in the opinion of significant
others through the acquisition and use of products and brands,
the willingness to conform to the expectations of others regarding
purchase decisions, and/or the tendency to learn about products
and services by observing others or seeking information from others
(Bearden et al., 1989). Consumer susceptibility to interpersonal
influence is viewed as a general trait that varies across persons and
that a persons relative influenceability in one situation tends to have
a significant positive relationship to his or her influenceability in a
range of other social situations (Bearden et al., 1989).
Generally, susceptibility to interpersonal influence has been
conceptualised into two dimensions, which are: normative and
informational influence (Bearden et al., 1989; Bearden and Rose,
1990; DRozario, 2001). Normative influence involves a desire to
conform to the expectations of the people in the group (Burnkrant
& Cousineau, 1975). A number of researchers have distinguished
between two forms of normative influence: utilitarian and value
expressive influence (Childers & Rao, 1992; Burnkrant & Cousineau,
1975). Utilitarian influence is reflected in an individuals attempt to
comply with the expectations of others in order to receive rewards or
avoid punishments, and it operates through the process of compliance
(Burnkrant & Cousineau, 1975; Bearden et al., 1989). Value expressive
influence relates to an individuals motive to enhance or support
his self-concept (Park & Lessig, 1977). The informational dimension
reflects a persons tendency to accept information from others as
evidence about reality (Deutsch & Gerard, 1955). Informational
influence was found to aect product evaluation and brand selection
(e.g. Burnkrant & Cousineau, 1975; Bearden & Etzel, 1982; Park &
Lessig, 1977) when consumers face uncertainty in decision-making.
Clothing Benefits Sought

Product is viewed as a bundle of benefits, or a combination of
attractions that all give something of value to the customer (Hooley
et al., 1998). In particular, consumers seek a variety of benefits from
clothing (e.g. Shim & Bickle, 1994; Park & Sullivan, 2009). According to
Foxall et al. (1998), benefits are whatever products provide consumers
and represent the reason they want them. Benefits that consumers
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IJMS 19 (1), 115133 (2012)

seek in products can be any kind of benefits including personal
identity, body appearance and impression, social status/prestige and
individuality (e.g. Park and Sullivan, 2009; Shim and Bickle, 1994).
The benefits that the firm believes the product oers may not be the
same as the ones the customers believe they get (Hooley et al., 1998).
Therefore, it is essential for marketers to understand the benefits that
consumers seek from their product oerings.
Benefits sought from clothing have been studied for many years
(e.g. Shim & Bickle, 1994; Park & Sullivan, 2009; McKinney et al.,
2004; Aiken, 1963). For instance, a study by Shim and Bickle (1994)
found nine clothing benefits sought including self-improvement,
social status/prestige, sex appeal, fashion image, functional/comfort,
role identification, figure flaws compensation and individuality. In
another study, Park and Sullivan (2009) have identified six factors;
fashion, body appearance and impression, brand value, personal
identity, price and comfort as the main clothing benefits sought.
Kinley (2010) identified four factors of benefits sought by consumers;
fashion forward, sexy, reputation, and individualist. In a qualitative
study conducted by Piacentini and Mailer (2004), the authors found
that clothes act as signals that the wearer is similar to other people who
wear similar clothes. Other studies have demonstrated that clothes
have been used to gain approval and acceptance from peers (Cox &
Dittmar, 1995), as direct expression of ones self-concept (Goldsmith
et al., 1996; Goldsmith et al., 1999), personality, occupational status,
and aliation with a group (Horn & Gurel, 1981). Results from
these studies suggest that consumers seek dierent types of benefits
from purchasing clothing from functional benefits or utilitarian
purposes (i.e. price and clothing material) to expressing consumers
personality, social status or aliation or to fulfil their psychological
and emotional needs.
The impact of the individuals susceptibility to interpersonal
influence on product-and brand-purchase decisions has received
considerable attention (Batra et al., 2001; Orth & Kahle, 2008; Bearden
& Etzel, 1982). For instance, Batra et al. (2001) found that high
susceptibility to normative influence leads to a greater importance
for those product attributes that provide socially visible benefits (i.e.
reputation and style). By extending Batra et al.s (2001) work from
product attributes to brand benefits, Orth and Kahle (2008) showed
that more susceptibility to normative influence tends to exhibit a
desire for social benefit in a brand since they have a higher need to
enhance their image in the opinion of others and tend to conform
more to the expectations of others. The findings from both studies
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IJMS 19 (1), 115133 (2012)

(Orth & Kahle, 2008; Batra et al., 2001) are consistent with the study by
Bearden and Etzel (1982) which shows that reference group influence
on a product-and brand-purchase decision is stronger for product
consumed publicy as compared to product consumed privately.
It appears that consumer consumption is strongly influenced and
shaped by reference group influence and individual proneness to
interpersonal influences. In particular, interpersonal influence on
consumer consumption is stronger for products consumed publicly
(Bearden & Etzel, 1982). This could be happening because products
consumed publicly (such as clothing) can be associated with the
personal characteristics of their users more than those products that
are consumed in private. However, to the best of our knowledge, no
prior research has investigated the impact of consumer susceptibility
to interpersonal influence on clothing benefits sought in the context of
shopping for clothing by British Muslim consumers.
Conceptual Framework and Research Hypotheses

Figure 1 presents the conceptual framework developed in this study.
The conceptual framework suggests that consumer susceptibility
to interpersonal influence aects clothing benefits sought which is
identified by five constructs namely uniqueness, conformity, selfcongruity, social status and modesty.
Uniqueness
H1
H2
Susceptibility to
Interpersonal Influence
H3
Conformity
Self-congruity
H4
H5
Social Status
Modesty
Figure 1. Conceptual framework and research hypotheses.
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IJMS 19 (1), 115133 (2012)

Consumers may acquire and display material possession for the
purpose of feeling dierentiated from other people (Tian et al.,
2001). In the context of clothing, individuals tend to buy clothes as
enhancement of individuality (Barnard, 1996). According to Tian et
al. (2001), consumers seeking uniqueness in products or brands is
indicative of an enduring personality trait referred to as consumer
need for uniqueness or CNFU, which is defined as an individuals
pursuit of dierentness relative to others that is achieved through
the acquisition, utilisation and disposition of consumer goods for
the purpose of developing and enhancing ones personal and social
identity. Consumers seeking for uniqueness tend to select products
and brands that dier from established norms, avoid similarities, and
make choices that position the individual as distinct from the group
(Tian et al., 2001).
Research has shown that being susceptible to interpersonal influence
from another implies that others opinions and evaluations are
important. Whether others opinions provide evidence about
reality or serve to maintain or enhance the individuals self-esteem,
the consumer has significant others who can help meet his/her
informational and social (normative) needs (Bearden et al., 1989).
Logically, people who tend to place importance on uniqueness
benefit are not concerned about social acceptance as they are actively
avoiding compliance with established social norms (Tian et al., 2001).
Thus, they are not subject to social influence. As such, individuals
who are more susceptible to interpersonal influence; who have
higher needs to enhance their image in the opinion of others and
a high tendency to conform to the expectations of others (Bearden
et al., 1989) may not seek uniqueness benefits in their purchase. In
other words, consumers seeking uniqueness through their purchase
actively seek to separate themselves from established social norms.
As such, individuals who are less susceptible to interpersonal
influence should place more value on uniqueness benefit as they
need to enhance their individuality through clothing. In contrast,
individuals with high susceptibility to interpersonal influence would
place lesser value on uniqueness benefits when purchasing clothes.
This suggests a negative relationship between the two constructs. It
is thus hypothesised that:
H1: Consumer susceptibility to interpersonal influence is negatively
related to uniqueness benefit in clothing.
Previous research shows that consumers may purchase clothes for
conformity benefit (Aiken, 1963) so that they can be accepted by
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IJMS 19 (1), 115133 (2012)

the group they wish to be associated with (MacGillivray & Wilson,
1997). According to Kahle (1995), tendency to conform or conformity
motivation relates to consumers concern with adhering to group
norms in purchase decision of a product or brand. In the context of
clothing, conformity means acceptance or adherence to a clothing
norm, that is, dressing in accordance with the norm of a specified
group (Horn & Gurel, 1981). Therefore, the desire to conform appears
to be aected by the norms of society.
Susceptibility to interpersonal influence reflects an individual
willingness to comply with the wishes of others (normative influence)
and the willingness to accept and internalise information from others
(informational influence) (Bearden et al., 1989). Following this, it is
expected that individuals with high susceptibility to interpersonal
influence would place more importance on conformity benefit in
buying clothing as they have a higher tendency to conform to others
expectations and higher needs to identify with or enhance ones
image in the opinion of significant others through the acquisition and
use of products and brands (Bearden et al., 1989). On the other hand,
individuals who are less susceptible to interpersonal influence would
place lesser importance on conformity benefit when purchasing
clothes because they are not concerned with conforming to group
norms and it will be reflected in their product choice. Thus, the
following hypothesis is established:
H2: Consumer susceptibility to interpersonal influence is positively
related to conformity benefit in clothing.
When making decisions in purchasing a product, a customer will not
only consider its functional features, but also attempt to comply with
the preference of others and present himself/herself to others through
the purchase (Johar & Sirgy, 1991). Consumers hold images of
themselves, of products, and of the types of consumers who purchase
and use certain products. The relationship between self-image and
product-image can have significant eects on consumers product
evaluations and purchase behaviours. In the context of clothing,
consumers may purchase clothes that have images similar to their
own self-image and typical images of consumers who purchase and
use those clothes. The idea of consumers preferring brands that have
images similar to their own self-image is known as self-congruity
(Sirgy, 1982, Sirgy et al., 1997) and it is an important factor in directing
consumer preference and choice (Heath & Scott, 1997; Kleijnen et al.,
2005; Sirgy et al., 1997).
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Studies conducted by Escalas and Bettman (2003) and Jia et al.
(2007) reveal that reference groups can significantly influence an
individuals self-brand connection; which measures the degree to
which consumers have incorporated the brand into their self-concept.
Escalas and Bettmans (2003) study shows that respondents are
more likely to develop self-brand connections when there is a strong
perceived usage association between the member group and the brand
and there is a strong connection between the member group and the
consumers self-concept. In a later study, Jia et al. (2007) stated that
the more an individual is subjected to normative (utilitarian and value
expressive) reference group influence, the more the individual tends
to pursue the congruency between self-concept and the image a brand
symbolises. The findings show that interpersonal influence impacts on
an individuals need for self-congruity. This is particularly relevant in
the context of clothing as the product has been used as an instrument
in improving self-concept through transferring socially attributed
meanings of the product or brand to oneself (Grubb & Stern, 1971). In
other words, the social meaning attached to clothes lead individuals
to use them to express themselves. As a consequence, consumers
would be able to maintain and enhance their personality and selfconcept (Hong & Zinkhan, 1995) and receive positive evaluation
from significant others. As such, an individual who is concerned
with other peoples opinions may place importance on self-congruity
benefit when purchasing clothes and would observe other peoples
clothing styles. In contrast, less susceptible to interpersonal influence
individuals are less concerned with this benefit as they do not behave
according to social expectations. Thus, the following hypothesis is
established:
related to self-congruity benefit in clothing.
Consumers may seek social status benefit when purchasing clothes
as it is often used to indicate social worth or status and people often
make judgments concerning other peoples social worth or status
on the basis of what those people are wearing (Barnard, 1996). As
such, social influence does have an impact on consumer needs for
social status benefit in clothing. Social influence can be in the form of
normative or informational influence (Burnkrant & Cousineau, 1975;
Deutsch & Gerard, 1955). Informational influence which reflects
the tendency to accept information from others as reality can result
from either a search for information from others who are considered
knowledgeable or from the observation of others behaviour (Park &
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IJMS 19 (1), 115133 (2012)

Lessig, 1977). Thus, it is likely that consumers seeking for social status
benefit in clothing are keen to observe cues associated with status
within a group and would be more susceptible to informational
influence within the group. In addition, consumers who place
importance on social status benefit would engage in conversations
with members of their reference groups about prestige and status
associated with certain products and brands.
On the other hand, normative influence which reflects an individuals
willingness to comply with the wishes of others (Burnkrant &
Cousineau, 1975) consists of value expressive and utilitarian
influences (Bearden et al., 1989; Childers & Rao, 1992). Park and Lessig
(1977) describe value expressive influence as conformity with the
behaviours or opinions of others in an eort to align ones self-image
with another individual or with members of a reference group and
utilitarian influence is an individual orientation toward conformity
as a means to avoid punishment and/or reap rewards. Therefore,
consumers seeking social status benefit see products as a vehicle to
enhance their social image within the group and view status within a
reference group as a reward that results from the purchase of products
that convey prestige and status. Moreover, normative influence of
the group defines which products and brands are prestigious. This
susceptibility also reflects a persons need to identify or enhance ones
image with significant others through material possessions (Bearden
et al., 1989). In view of that and the above discussion, it is likely
that a consumer seeking social status benefit is influenced by both
interpersonal influence pressures. Hence, the following hypothesis
is established:
related to social status benefit in clothing.
Consumers may seek modesty benefit; the fundamental basis for all
clothing (Barnard, 1996; Horn and Gurel, 1981). Modesty revolves
around the idea that certain body parts are indecent or shameful
and should be covered so that they cannot be seen (Barnard, 1996).
In Islam, Muslims are required to dress modestly whereby clothing
should not be worn for the purpose of attracting attention or showing
o. Clothing must be loose and cover the entire body; only the hands
and face may remain visible for women. Material used to cover the
body parts is thick so that no one can see through it. The womans
clothing must not resemble the mans clothing, nor should the mans
clothing resemble the womans and Muslims should not wear clothing
to look like a non-Muslim (Badawi, 1980).
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IJMS 19 (1), 115133 (2012)

Muslims are required to dress modestly so that attention is not drawn
to the wearers. Prophet Muhammad says, Whoever wears a dress of
fame in this world, all will clothe him with a dress of humiliation on the day
of resurrection, then set it afire. This Hadith shows that clothing should
not be worn for the purpose of attracting attention or to show o.
Muslims are not supposed to emphasise their body and should wear
clothes that discreetly cover it (Iqbal, 1973). Therefore, people seeking
modesty benefit in clothing do not wish to display and enhance the
sexual or social attractiveness of themselves in the eyes of other
people. This implies that they are not concerned with conforming
to the social expectation and may choose certain clothes not because
other people would observe them. In view of that, individuals who
place importance on modesty benefit in clothing would be less
concerned with other peoples opinions as their motives of clothing
are not to draw other peoples attention to them or for the purpose of
showing o. In contrast, people who place less importance on this
benefit may be more susceptible to other peoples expectations and
thus the following hypothesis is developed:
H5: Consumer susceptibility to interpersonal influence is negatively
related to modesty benefit in clothing.
Methodology
Sampling and Data Collection
The data collection process was conducted over a period of 6 weeks.
A total of 222 survey questionnaires were received. 82.6% were
from females and 17.4% were from males. The information on the
marital status of the respondents demonstrated that more than half
(78.2%) were single, followed by married/living with partners (19.9%)
and divorced (1.9%). With regards to educational background, the
majority of the respondents had obtained undergraduate degrees
(53.4%). While others had attended at least high school and obtained
equivalent to GCSEs/O Level (5.4%), A Levels (17.6%), professional
qualification/diploma (10.3%), and postgraduate degrees (13.2%).
The demographic profile of the respondents matched the profile of
British Muslims in UK (UK National Statistics, 2001). According to
the UK National Statistics (2001), three quarters (74%) of Muslims
were from an Asian ethnic background, predominantly Pakistani
(43%), Bangladeshi (16%), Indian (8%) and other Asians (6%). In this
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IJMS 19 (1), 115133 (2012)

study, in terms of the ethnic group, the majority of the respondents
associated themselves with Pakistan (40%), Bangladesh (14%) and
India (12.1%). Therefore, it can be concluded that the data represented
the population.
Survey Instrument
The measures pertaining to uniqueness, conformity, self-congruity,
social status, modesty and susceptibility to interpersonal influence
were measured by asking respondents questions in the form of a
7-point Likert scale ranging from 1 (strongly disagree) to 7 (strongly
agree). Uniqueness was measured using four items adapted from
Gurel and Gurel (1979) and Park and Sullivan (2009). The conformity
scale was measured using five items adapted from Gurel and Gurel
(1979) while self-congruity was measured using five items adapted
from Sirgy et al. (1997). Five items to measure social status were
adapted from Eastman et al. (1999) and Summer et al. (2006) and the
modesty scale was measured using six items adapted from Gurel
and Gurel (1979). Finally, the scale for susceptibility to interpersonal
influence was measured using 12 items adapted from Bearden et al.
(1989). The survey questionnaire items were pretested on a sample of
35 British Muslims.
Findings and Discussion

Construct Validity
The construct validity for all the measures was assessed before
assessing the hypothesized relationships shown in Figure 1. First, the
exploratory factor analysis was performed for each construct and the
results revealed that the data were appropriate factor analysis. Most
of the correlation coecients were above 0.3, the Kaiser-Meyer-Oklin
Measure of Sampling Adequacy (KMO) value was higher than the
recommended value of 0.6 (0.873) and the Bartletts Test of Sphericity
achieved statistical significance confirming the suitability of the data
for factor analysis (Pallant, 2005).
Having conducted the EFA analysis for all the constructs, the validity
and reliability tests were conducted using the confirmatory factor
analysis. The results showed x2 value of 356.605 with 254 degrees of
freedom (p=0.000) and demonstrated good-of-fit indices (CFI=0.967,
TLI=0.961, RMSEA=0.043, and x2/df=1.404). All standardised loadings
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IJMS 19 (1), 115133 (2012)

were above 0.5 and construct reliability for all constructs were greater
than 0.8, which exceeded the suggested value of 0.6 (Hair et al., 2006).
In addition, variance extracted satisfied the recommended value of 0.5.
Therefore, the CFA results for overall constructs exhibited satisfactory
results with regard to the fit indices, unidimensionality, convergent
validity, discriminant validity and reliability. This suggests that the
values were sucient to confirm a good fit of the model to the data.
Structural Model
The results of the full strutcural model is presented in Table 1. The
fit indices (CFI=0.965, TLI=0.961, RMSEA=0.043, x2/df=1.402) are
acceptable, which implies that the estimated model has achieved a
good fit. Susceptibility to interpersonal influence showed signifcant
eects on uniqueness (0.345), conformity (0.730), self-congruity
(0.483) and social status (0.76). Results do not support the relationship
between modesty and suscpetibility to interpersonal influence. Thus,
H1, H2, H3 and H4 are accepted while H5 is rejected. Susceptibility
to interpersonal influence as a factor consisted of normative
and informational influence. Loading of normative influence on
susceptibility to interpersonal influence is 0.894 whereas the loading
of informational influence on susceptibility to interpersonal influence
is 0.598.
Table 1
Structural Model Results
Hypotheses and Hypothesed and
Paths
Standardised
Coecients
Critical Ratio
(t-value)
Results
H1
Susceptibility to Interpersonal
Influence Uniqueness
0.345
4.037***
Supported
H2
Influence Conformity
0.730
8.158***
Supported
H3
Influence Self- congruity
0.483
5.734***
Supported
H4
Influence Social Status
0.076
9.178***
Supported
H5
Influence Modesty
-0.053
-0.694(NS)
Rejected
(continued)
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Goodness-of-fit Statistics
Absolute fit
Incremental fit
Parsimonious fit
Chi square (x2) of estimate model
Root Mean Square Error of Approximation

(RMSEA)
Tucker Lewis Fit (TLI)
Bollens Incremental Fit Index (IFI)
Comparative Fit Index (CFI)
Parsimony fit (x2 /df)
Parsimony Normed Fit Index (PNFI)
Parsimony Goodness-of-fit Index (PGFI)
Results
x2=375.85
df=268
p=0.000
0.043
0.961
0.966
0.965
1.402
0.795
0.730
***significant at p<0.001, NS-not significant.
The result of Hypothesis 1 is in line with expectation except that the

sign of the relationship shows a reverse direction. It was expected
that the British Muslim consumers susceptibility to interpersonal
influence is negatively related to the uniqueness benefit in clothing.
However, the research findings show that British Muslim consumers
susceptiblity to interpersonal influence enhances their need for
uniqueness in clothing. The positive link between susceptibility
to interpersonal influence and the need for uniqueness is perhaps
related to the context of this study. Because this study is conducted
in a Western culture, having a unique identity via clothing appears to
exhibit desirable attributes since the culture emphasises individuality,
personal success, originality and uniqueness when compared to
Eastern cultures which value group benefits, harmony, and family
integrity (e.g. Burns & Brady, 2001; Lee & Kacen, 2000). Therefore, the
respondents need for uniqueness in the context of clothing may have
helped to reinforce British Muslims cultural and religious identities.
Consequently, exhibiting uniqueness via clothing may have allowed
these relatively young British Muslims to win social appreciation and
a sense of assimilation.
The results of Hypothesis 2 support the positive link between British
Muslim consumers susceptibility to interpersonal influence and
conformity benefits in clothing. This means that the more susceptible
a consumers toward interpersonal influence, the more likely he or
she is to place importance on conformity benefit in clothing. Support
for the positive relationship between susceptibility to interpersonal
influence and conformity benefit in clothing may indicate that
relatively young British Muslims in this study are able to maintain
standards or norms as set by a specified group through wearing
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IJMS 19 (1), 115133 (2012)

dress similar to their respective social groups. It can also be said that
wearing or adopting similar styles worn by the group members may
have created a unified look or image with the group that they want to
be identified with.
The result of Hypothesis 3 is in line with expectation. It suggests that
the more susceptibile individuals are toward interpersonal influence
the more they are likely to purchase clothing that show a higher degree
of congruence between the individuals self image and product- user
image (Sirgy et al., 1997). This finding is consistent with the results
found by Jia et al. (2007) that show that the more an individual subject
is to normative (utilitarian and value expressive) reference group
influence, the more the individual tends to pursue the congruency
between the self-concept and the image a brand symbolises.
The finding of Hypothesis 4 is in line with expectation. The
results of this study suggest that there is an important impact of
interpersonal influence on consuming clothing for social status
purpose. Consumers are motivated to acquire products according
to what they mean to them and to the other members of their social
reference groups (Leigh & Gabel, 1992). Consequently, it would
appear that consumption of clothing for social status is considered
appropriate among the relatively young British Muslims social
environment, which in turn makes them undertake such behaviour
in order to fit the social standards (Shukla, 2010). Thus, it can be said
that the British Muslims desire for social status through clothing is
determined by social network and reference group influence (Wong &
Ahuvia, 1998). As such, the direct positive link between susceptibility
to interpersonal influence and social status in clothing suggests that
the British Muslims motivation to improve their social standing via
consumption of clothing products was enhanced by their tendency to
accept social influence.
The result of Hypothesis 5 is not significant although it shows negative
relationship between modesty and susceptibility to interpersonal
influence. An explanation for the contrary result of Hypothesis 5
can be found in the demographic profile of the sample. Given that
the British Muslim sample in this study comprised of young people
between the ages of 18 and 30, it can be assumed that they placed
less importance on dressing modestly. Drake (1978), cited in Horn
and Gurel (1981), found that concern with modesty in clothing may
also change with age where by the younger age group expressed
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little concern about the degree of body exposure or tightness of
clothing compared to the elder people. This finding implies that
the importance of wearing modest clothing is less important among
young people. Other than that, the majority (72.8%) of the British
Muslim sample in this study have been in the UK since they were
born, and presumably have adopted host country attitudes and
values (Penaloza, 1994). In terms of consumption, they are more likely
to show preference for mainstream products (Laroche et al., 1999;
Green, 1997). Consequently, their way of dressing might depict the
typical westeners clothing which includes short skirts, tight trousers,
shorts and tops. Accordingly, in this study, individual susceptibility
to interpersonal influence is not related to an individuals need for
modesty in clothing.
Limitations and Directions for Future Research

The results obtained from this empirical work must be interpreted in
the light of the studys limitations. In this study, analysis was restricted
to a particular product context (e.g., clothing) and consumer segment
(e.g., British-Muslims) and needs to be tested over numerous contexts
before one can be certain of its applicability to other domains. In
this study the data was collected through web-based questionnaires,
whereby the respondents were asked to complete the questionnaire
on their own. This method was employed because errors in the coding
of answers could be avoided (Bryman & Bell, 2007) but, on the other
hand, the respondents might fill out the questionnaire arbitrarily.
Despite its limitations, the findings of this study provide a platform
for future investigation and it yields valuable insights into the
importance of a number of marketing issues. First, the results of this
study are limited to a relatively young British Muslim population
aged between 18 and 30 years old. This study could be replicated
for British Muslims in other age categories (i.e. teenagers or adults
above 30 years old). Such studies would ensure that the findings of
this study are not limited to just one specific age category but indeed
reflect a more general relationship. Therefore, it is suggested that
future research endeavours should include dierent age categories.
Further research may also benefit by a broadening of the scope of
examination to include other ethno-religious minorities (such as
Hindus, Buddhists and Sikhs) as this study is limited to British
Muslims. This will provide finer and more meaningful categories for
marketers (Sirkeci, 2009).
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PREDICTING WORK-FAMILY AND FAMILYWORK CONFLICT FROM WORK AND FAMILY

DOMAIN: A LONGITUDINAL STUDY
ZAITON HASSAN
HANA HAMIDI
Abstract
Although work-family conflict studies are available in Malaysia, most
rely on cross-sectional design and focus on women. This study uses the
longitudinal design on a heterogeneous sample which is aimed to enhance the
understanding of the antecedents of work-family conflict (WFC) and familywork conflict (FWC) from work and family demands and resources. The
respondents were 296 employees in diverse industries from six public and
private organizations in Kuching, Sarawak. Two surveys were conducted
over a three-month interval. Structural Equation Modeling via AMOS 7.0
was used to analyse the data. The study found that the respondents reported
higher WFC than FWC. Demands from work predicted WFC positively
while resources from work predicted WFC negatively. None of the demands
and resources from work and family predicted FWC. The findings implied
the importance of organizations in influencing the work-family balance of
the employees.
Keywords: Work-family conflict (WFC), family-work conflict (FWC),
demands, resources.
Introduction
The capacity to balance work and family is recognized as one of the
primary social challenges in this era Halpern (2005) in Grzywacz
and Carlson (2007). For instance, a recent report in the United States
indicated that more than 90 per cent of American mothers and 95 per
cent of American fathers report experiencing work-family conflict,
with the majority of them in the middle class (Anonymous, 2010). Lack
of balance, indicated by high work-family and family-work conflicts
are related to negative consequences to individuals employees and
organisations.
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Greenhaus and Beutell (1985) defined work-family conflict (WFC)
as a form of inter- role conflict, in which the demands of work and
family roles are incompatible in some respect, so that participation
in one role is more dicult because of participation in the other
role(p. 77). Scholars divided WFC into two directions; i.e. work can
interfere with family responsibilities (work-to-family conflict - WFC)
and family can interfere with work responsibilities family-to-work
conflict (FWC) (e.g.; Carslon, 2000; Frone, Russell & Cooper, 1992)
Previous researches have shown that WFC were related to greater
turnover intentions, greater sickness absences (Hacker & Doolen,
2003), less job, family, community and life satisfaction (Hassan,
Dollard & Winefield, 2010). In addition, employers policies and
practices in managing work and non-work issues have an influence
on society including children, community, individuals and personal
and spiritual development (Friedman & Greenhaus, 2000).
Since the research on work-family interface started in the Western
countries, the literature is dominated with Western perspectives.
However, culturally, individualist (mostly Western countries)
and collectivist (mostly Eastern countries) view work and family
dierently. While work is separated from private life in individualist
society, work and life are integrated in collectivist society (Hofstede,
1984). To illustrate, life satisfaction of Hong Kong employees is
influenced primarily by WFC, while that of American employees is
influenced primarily by FWC (Aryee, Fields & Luck, 1999). Yang et
al.s (2000) research in the United States and China found that family
demands had stronger eects on WFC for American employees while
work demand had stronger eects on Chinese employees.
Most work-family studies relied on cross-sectional design which
subject to common method variances and bias (Jansen, Kant,
Kristensen & Nijhuis, 2003). Furthermore, by using this crosssectional design, the direction of influence/impact could not be
determined. Moreover, many studies concentrated on women and
married employees, although it had been demonstrated that men
and singles are also experiencing WFC (Grant-Vollent & Donald,
2001). WFC studies in Malaysia are no exception (e.g. Ahmad, 1996;
Noor, 1999, 2003). In these Malaysian studies, WFC was measured
as unidirectional instead of bi-directional (i.e only examine the WFC
direction and ignore the FWC direction) which did not capture
the work-family conflict construct appropriately. Moreover these
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Malaysian studies concentrated on the outcomes of WFC (eg: job
satisfaction, family satisfaction, happiness, well-being) and not the
antecedents or determinants.
Therefore, this paper aims to examine the longitudinal relationship
between WFC, FWC and their antecedents; i.e. demands and resources
from job and family domains. As such the paper contributes to the
work-family literature by investigating both directions of conflict on
a heterogeneous sample using the longitudinal design in an Eastern
cultural context. This study is based on the conceptual models
developed by Frone et al. (1992), which emphasize the importance of
distinguishing the direction of work-family conflict because the rolerelated antecedents of WFC may reside in the work domain, whereas
the antecedents of FWC may reside in the family domain (Frone,
2003; Kinnunen & Mauno, 2008). It is also important to identify the
antecedents of conflict so that HR interventions can be designed
and implemented to help employees in managing the conflict more
eectively. Thus, the negative consequences of work-family and
family-work conflicts on an individual employee, workplace and
family can be minimized.
Literature Review
Work-Family Conflict and its Antecedents
WFC occurs when work-related responsibilities interfere with family
activities. For instance, an employee may have to work long hours
because of too much work and spend less time with the family;
miss children sports day due to work and is too tired to help in the
housework after work. This study is grounded on Frones (2003) view
that work and family are interrelated domains, that is, one domain will
influence the other. Particularly, this study is based on the resource
drain model which posits the negative relationship between work
and family due to limited resources (time, energy, attention) in one
domain (minimize the availability of the same resources to be utilized
in another life domain) (Frone, 2003). The categorization of time,
strain and behaviour-based WFC and FWC (eg. Carlson et al., 2000)
is one example that supports the resource drain model. For instance,
more hours spent at work will make it more dicult for an employee
to fulfil his / her responsibilities at home. A lot of research shows,
with the increase in working hours, employees experience higher
work demands (Zhang & Liu, 2011) which in the end contribute
to WFC.
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Antecedents of WFC can be divided into three categories: (a) work
domain variables; (b) non-work domain variables and (c) individual
and demographic variables (Byron, 2005). This study only concentrates
on the first two categories as these factors are easier to change
than permanent personal factors (Kinnunen & Mauno, 2008; Zhang
& Lui, 2011).
With regard to work domain variables, theories and research findings
from Western countries have consistently demonstrated the link
between job demands and WFC (Bruck, Allen & Spector, 2002; Byron,
2005; Frone, Yardley & Markel, 1997). Antecedents of WFC reside in
the work domain, whereas FWC in the family domain (Byron, 2005;
Frone, 2003; Kinnunen & Mauno, 2008). Job demands found to be
predictors of WFC are work pressure (Grzywacz & Marks, 2000)
and long hours (Spector et al., 2007). For both the Taiwanese and
the British, work demands were positively related to WFC, whereas
family demands were positively related to FWC (Luo et al., 2006). In a
similar vein, longitudinal studies at one year apart among Dutch male
employees demonstrated that psychological job demands, physical
demands and emotional demands increased the risk for future WFC
(Jansen et al., 2003).
In addition, researchers have also studied the relationship of some
work-related factors, such as work demand, work devotion, workdedication and WFC (Zhang & Liu, 2011). Hall and Ritcher (1988) as
cited in Zhang & Liu (2011) stated that the more an individual devotes
himself into the work role, the greater the possibility he may bring
work problems back home, and the bigger the WFC. In other words,
high devotion to work is unavoidable to cause individual sacrifice of
family life and to result in WFC (Zhang & Liu, 2011).
On the contrary, job resources (high levels of autonomy and respect,
meaningful work) showed negative relationship to WFC (Voydano,
2004). Similarly a longitudinal study among Dutch employees
revealed that supervisors and co-workers support had protective
eect against future WFC (Jansen et al., 2003). Based on previous
evidence (e.g. Bruck, Allen & Spector, 2002; Byron, 2005; Jansen et. al.,
2003; Voydano, 2004); we proposed:
H1: Job demands will be positively related to work-family conflict,
whereas job resources will be negatively related to work-family
conflict.
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Family-Work Conflict and its Antecedents
FWC arise when family tasks and activities hinder work responsibilities.
Examples of FWC include being absent from work to deal with family
responsibilities, being occupied with family problems while at work
and declining to travel because of child-caring activities.
Contrary to the theoritical expectation, Byron (2005) in her metaanalytic review of 60 studies found that the corelation between FWC
and family domain were not more strongly related than their corelation
with WFC. In other words, corelation between antecedents from
the family domain and FWC have similar strength as the corelation
between antecedents from the family domains and WFC. Only a few
family-related antecedents i.e. hours of non-work activities, family
stress, number of children and marital status are reported to relate
more strongly to FWC than to WFC. For instance, levels of FWC
are higher among those with children than those without children
(Grzywacs & Marks, 2000); employees with low social support and
control in the family situation (Demerouti, Guerts & Kompier, 2004).
In addition, in their longitudinal study, Grandey and Cropanzano
(1999) demonstrated that having children at home and greater family
role stress are related to an increase in FWC. Guerts et al. (2005) found
that relatively high levels of home demands and low levels of home
support were associated with relatively high levels of negative FWC.
In contrast, Che Rose and colleagues (2006) in their study among
475 managers and executives in Selangor, Malaysia, reported that
having harmonious successful home environments from spousal and
family support is highly valued, which could lead to less FWC. The
reason why family demand influences WFC is the variety of stresses
produced as family demand is satisfied, such as role overload related
to family role involvement, role conflict and role vagueness (Zhang
& Liu, 2011). This stress from family level reduces the resources that
can be used in the work field. The individual worker, who spends a
lot of time on the family and takes on more family roles, will feel lack
of working time and energy. High-level family demands may require
individuals to spend more time on family aairs, which cause the
related stress to increase and spill over to the work role (Zhang & Liu,
2011). Based on this evidence, we proposed:
H2: Family demands will be positively related to FWC, whereas
family resources will be negatively to related FWC.
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The conceptual model of the study is illustrated in Figure 1.
Jobdemands
Jobresources
H1
Familydemands
WFC
Familyresources
H2
FWC
Figure 1. Antecedents of WFC & FWC.
Method
Participants and Procedure
The population of this study is 1,000 employees from six public and
private sectors from the forestry, manufacturing, telecommunication
and service industries in Kuching, Sarawak, Malaysia. Simple random
sampling was used to choose the respondents. The respondents
were contacted through their human resource managers and were
asked to complete a voluntary self-administered questionnaire each.
Included with the questionnaire were an endorsement letter from
the Sarawak State Planning Unit, a central body that governs all the
organizations in the state, and an invitation to participate in the Time
2 study. The questionnaires were returned in sealed envelopes to the
researcher through the human resource manager two weeks after
the distribution. A total of 506 employees responded, representing a
response rate of 50.6per cent at Time 1 (started in August 2006) and
296 responded at Time 2 (started in November 2006) (response rate of
58.5per cent 296/506). The final sample did not dier significantly in
terms of demographic characteristics at Time 1 and Time 2.
The majority of the respondents were male (56per cent), nonexecutives (77per cent), had permanent posts (82per cent), were in the
age group of 35 to 45 (36per cent), were married for an average of 15
years (53per cent) with 1 to 9 children (80per cent), and had a working
spouse (50per cent). 39per cent had 11 years of education, with 15per
cent having Bachelors degrees. The length of time working in the
organizations ranged from 1 to 39 years, with a mean of 12.63 years.
Nearly half (45per cent) were Malays and 50per cent were Muslims,
which reflect the Malaysian national population composition.
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Measures
Work-family Conflict (WFC)
WFC is defined as the negative eect of work-related responsibilities
to family activities, while family-work conflict is defined as the
negative eect of family-related responsibilities to work activities.
Both WFC and FWC were assessed using the 18 items-WFC scale
(Carlson, Kacmar & Williams, 2000). Some examples of the items are
I have to miss work activities due to the amount of time I must spend
on family responsibilities and The behaviours that work for me at
home do not seem to be eective at work. The items are scored on
a 5-point scale (1 = strongly disagree to 5 = strongly agree). The current
study found acceptable internal reliability for WFC and FWC, .86 and
.85 at Time 1 and .83 and .84 at Time 2 respectively.
Job Demands
Job demands are defined as challenges faced in order to complete the
responsibilities at work which include work demands, work overload
and work involvement. Job demand measures are work demands (5
items from Voydano, 2004), work overload (2 items from Foley,
Hang Ye & Lui, 2005) and work involvement (4 items from Carlson
& Perrewe, 1999 and Hyman, Scholarios & Baldry, 2005) are scored
on a-6 point Likert scale (1 = strongly disagree to 6 = strongly agree).
Sample items include My work load is too heavy, I never seem to
have enough time to get everything done in my job and I am very
much involved in my job role. All items are averaged and higher
scores indicate higher demands ( = .93).
Family Demands
Family demands are defined as challenges faced in order to fulfil
the family responsibilities. Family demands in this study consist of
family time commitment and family overload (Peeters, Montgomery,
Bakker & Schaufeli, 2005). It was assessed on a-5-point scale (1 = never
to 5 = always). Sample questions are I never seem to have enough time
to get everything done at home and I have to do many things in a
hurry when I am at home ( = .83).
Job Resources
Job resources are defined as support received at the workplace to assist
with task completion. Job resources in this study measure support
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from supervisors (5 items Voydano, 2005), co-workers, (4 items
Voydano, 2004), usefulness of WF policies (3 items Lambert,
2000) and work autonomy (6 items Voydano, 1988) using a 6-point
scale (1 = strongly disagree to 6 = strongly agree). Sample items include
My supervisor accommodates me when I have family or personal
business to take care of and My organization work-life balance
policies make it easier for me to balance my work and personal life.
All scores are summed and higher scores indicate higher support at
work. ( = .84).
Family Resources
Family resources are defined as support received from family
members in order to fulfil family- related obligations. Family support
is measured via the Family Support Inventory for Workers (King,
Mattimore, King & Adams, 1995). The 16 items encompass both
emotional and instrumental assistance and are scored on a 5-point
scale (1 = strongly disagree to 5 = strongly agree). Item includes Members
of my family are interested in my job ( = .86).
Analysis
Analytical Strategy
First, we screen the data by deleting outliers (as suggested by Kline,
2005) by inspecting the frequency distribution of the z scores. Data
with z scores outside 3 and +3 were deleted. Only 277 valid cases
from 296 respondents (matched Time 1 and Time 2 respondents)
(without outliers) were included in the final analysis.
Secondly, we conducted the confirmatory factor analysis (CFA),
followed by correlation and hypotheses testing. CFA and hypotheses
testing were examined by the structural equation modelling (SEM)
using AMOS 7.0 through the Maximum Likelihood Estimation
procedure.
Thirdly, we examined the measurement model for each latent
measure. For demands, the two-factor model (demands from work
and family) with correlations between factors was found to provide a
reasonable fit to the data and better than a 1-factor model of demands
( 2(6) = 1167.62 p < .001). Factor loadings for demand items ranged
from .51 to .91 and all were significant at .001.
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For resources, the two- factor model (resources from work and family)
with correlation between factors was found to provide a reasonable
fit to the data and better than a 1-factor model of resources ( 2(1) =
1035.34 p < .001). Factor loadings for resource items ranged from .40
to .80 and all were significant at .000.
Results
Using the Pearson Produce Moment Corelation, we found that job
demands had positive relationship with WFC (r = .20, p < .01) and
FWC (r = .12, p < .01) at Time 2 while job resources had negative
relationship with WFC (r = -.19, p < .01) and FWC (r = -.12, p < .05)
at Time 2. The result demonstrated the cross-domain eect of job
demands and resources and FWC. Family demands and resources
were not significantly related to WFC and FWC.
Hypothesis 1 proposed that job demands will be positively related to
WFC and job resources will be negatively related to WFC. The model
had a moderate good fit to the data - 2(14) = 30.23, p < .000; 2/df =
2.15; CFI = 0.97, TLI = 0.97, RMSEA = 0.06) (see Figure 2). As predicted,
job demands are positively related to WFC ( = .18, p < .01) and job
resources are negatively related to WFC ( = -.16, p < .01). The result
fully supported Hypothesis 1.
Consistent with the correlation result, Hypothesis 2 which predicted the
positive relationship between family demands and FWC and the negative
relationship between family resources and FWC were not supported.
Job demands
.18**
.05
Family
demands
WFC T2
WFC T1
-.17**
Job
resources
.01
FWC T2
Family
resources
FWC T1
Chi Square = 30.23

CMin/df = 2.15
GFI = .97
CFI =.97
TLI = .94
RMSEA = .06
Figure 2. Structural model for demands and resources and conflict

(longitudinal data)
Note. ** p < .01; non-sig paths are not shown.
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Discussion and Implications

Although several Malaysian researchers have studied work-family
conflict (e.g. Ahmad Zainal Abidin et al., 2010; Ahmad, 1996; Noor,
1999, 2006), the present study is one of the first to provide empirical
evidence using longitudinal data (3 months apart) on a heteregenous
sample. The goal of this study was to determine the causes of WFC
and FWC from work and family demands and resources, and by the
using longitudinal design, we were able to determine the direction of
the relationship between the antecedents and WFC and FWC.
Consistent with the resource-drain perspective, we found that
job demands were positively related to WFC over time, while job
resources were negatively related to WFC over time.
Our finding provides support for the universality of relationship
between job demands and WFC, as presented in previous researches.
In this study we found that job demands (work demands, work
overload and work involvement) cause more WFC. This is
expected because high job demands require more time, energy and
commitment at work, particularly for employees with high levels of
work involvement. Thus high job demands contribute to time and
strain-based WFC because it is dicult for an employee to prevent
stress and pressure from the workplace into the family domain.
Job resources (support from supervisors, co-workers, family-friendly
policies and job autonomy) were negatively related to WFC. In other
words, job resources could act as buers to work-family conflict;
similar to previous findings (e.g: Dinger, Thatcher & Stepina, 2010;
Eng, Moore, Grunberg, Greenberg, & Sikora, 2010). Having supportive
supervisors and co-workers improve the employees ability to
respond eectively to multiple role demands and thereby decrease
their perception of WFC. The finding emphasis the importance of
organisation in creating a culture that is supportive to the family.
By practicing family supportive culture in the organisation, support
from supervisors and co-workers can be sought easily, which will
lessen the experience of WFC.
In allocating work to employees, some autonomy should be granted
as it will neutralize the high job demands and overload. By having
some autonomy and flexibility such as how to carry out the job, who
to work with and where to do the job, employees gain sense of control
which increase their capacity to fulfil the demands, with minumum
interuption to their family, thus lowering their perception of WFC.
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It is interesting to note that in this study, demands from the family
domain did not predict FWC; contrasting other previous findings (eg:
Demerouti et al., 2004; Guerts et al., 2005). One possible explanation is
the Malaysian collectivist society; work and family domains are more
integrated and permeable than the Western individualist society
(refer Aycan, 2008; Hofstede, 1994). In individualist cultures people
prefer to act as individuals, whereas in collectivist culture they act
as members of an in-group (e.g. extended family). In individualist
culture, the individual is expected to look after himself/herself, and
relationships with parents or siblings may not last a lifetime. In
contrast, in collectivist culture, the extended family forms a strong
cohesive tie that protects the individual for a lifetime in exchange
for loyalty and sharing of resources (e.g. income, house) (Hofstede &
Hofstede, 2005). Spending more time and energy in family activities
is not perceived as a burden because the family is the most important
in-group for the collectivist society (Hofstede & Hofstede, 2005).
Therefore, family demands were not perceived as pressure that
would interfere with work responsibilities.
Family resources did not significantly predict FWC as reported in
previous Eastern studies (eg: Aryee, Srinivas & Tan, 2005). A possible
explanation could be that although family support was available, it
was not eective enough to combat FWC. This is because receiving
support from the family comes at a cost; such as it can threaten an
employee s competence, become dependent on family members or
become obliged to repay the support.
Limitation and Future Research
Although we utilized a longitudinal design, only work-family and
family-work conflict variables are measured at both times. Future
research could measure all variables (demands and resources as well
conflict) at both times so that a stronger conclusion could be derived.
Future research could investigate the positive side of the work-family
interaction that is, work-family enrichment, facilitation, as recent
studies demonstrated the benefits of the work-family interactions
(eg. Voydano, 2004). This positive outcome of work and family
interaction, is important to be highlighted so that organizations could
create interventions to increase the positive sides of this work and
family interface. Work-family enrichment is also in line with the
positive psychology movement which is getting researchers attention
in this decade (Seligman & Csikszentmihalyi, 2000).
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IJMS 19 (1), 135150 (2012)

In addition, as the life domain encompasses other domains besides
the family; future studies could examine the influence of other
domains such as community, leisure and personal time in work-life
interface; so a more holistic understanding of work and non-work
could be obtained.
Conclusion
In conclusion, Malaysian employees in this study reported higher
WFC than FWC. Job demands contribute to more WFC while job
resources decrease WFC. The study however, did not find any
significant predictors of FWC from the work and family demands
and resources invesigated.
Therefore it is important for organisations to provide more job
resources to employees in order to minimize the employees
experience of WFC. Job resources could be oered through familyfriendly policies and culture; supportive supervisors and co-workers
as well as better job designs. Most importantly, the idea of having a
balance between work and family should be promoted to all employees.
Acknowledgment
1.
The paper was presented at the 5th National Human Resource

Conference, 810 June 2010, Kuala Terengganu, Malaysia,
organised by the College of Business, Universiti Utara Malaysia.
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GENUINE SAVINGS FOR MALAYSIA:

WHAT DOES IT TELL?
JAMAL OTHMAN
ROBY FALATEHAN
YAGHOOB JAFARI
Abstracts
Resource and environmental economists have argued that the conventional
GDP is not an adequate indicator to reflect if an economy is growing
sustainably, as it does not consider the changes in national capital and
pollution impacts. The World Bank Genuine Savings indicator, though in
the weak sustainability form, provides an alternative measure. This paper
calculates the Genuine Savings for Malaysia from 19902008. While the
results show that the Genuine Savings for Malaysia has been positive, its
ratio to GDP declines markedly following the economic crisis of 1997/98.
Comparisons with selected countries, especially South Korea and Indonesia
are also made. Policy implications are deliberated at the end of the paper.
Keywords: Malaysian genuine savings, sustainability path, macroeconomic
sustainability measure.
Introduction
For the past thirty years, Malaysia has pursued a rapid economic
growth course viz attracting foreign investments and proactive
industrialization processes. Thus far, according to the conventional
GDP indicator, Malaysia to a large extent, has been able to sustain a
positive economic growth trajectory. However, there are increasing
concerns world-wide that the conventional GDP may not be adequate
to reflect if an economy is growing sustainably, as it essentially does
not capture the changes in national capital or assets and pollution
impacts. Hence, an important and growing apprehension is whether
Malaysias economy is moving on the sustainable growth path.
Although the fallacy of the GDP indicator as a true measure of
economic performance in aggregate has long been noted, the need
for alternative indicators became an increasingly important issue
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IJMS 19 (1), 151174 (2012)

especially after the UN Conference on Environment and Development
in 1992. Agenda 21 specially stressed very explicitly the need for the
world at large to develop the capacity to assess the true progress of
the economy.
Pearce et al. (1989) pointed out that the operational definition of
sustainable development in the weak sustainability paradigm is
that the total stock of capital, including, man-made capital, human
capital, natural capital and even social capital should be maintained
as a necessary condition to maintain future well-being. This was
based on his earlier work where he extended the Hartwick (1977)
rule to devise the term Genuine Savings (GS). Essentially GS defines
the sustainability conditions for non-renewable resource dependent
economy on the ability to maintain a constant stream of consumption
into the infinite future. This can be achieved via a savings and
investment rule that ensures the aggregate stock of physical and
natural capital remains constant over time.
In support of Pearce, Vincent (2001) strongly attributed the inability
of many resource-rich economies to achieve long-term welfare
improvements to the failure of the said countries to oset the
depletion of natural resource stocks with sucient investments in
physical capital and human capital; consequently, their total wealth
-the sum of physical, human, and natural capital declines.
The Genuine Savings (GS) (or sometimes known as Adjusted Net
Savings) indicator broadly measures the aggregate net savings in a
country that takes into account the depletion of natural resources and
pollution. There have been three main approaches to calculate the GS,
viz; (a) the approach developed by the United Nations Commission
on Sustainable Development in 1995, (b) Correction of the System of
National Account (SNA) via the System of Environmental-Economic
Accounts (SEEA) developed by the United Nations Statistical Division
(UNSD) in 1993, and (c) The World Banks measure of the wealth of
nations in 1997. Of the three, the third approach has been widely
applied for many countries.
Operationally, the GS is defined as;
Genuine Saving = Gross Domestic Saving Consumption of Fixed Capital
+ Education Expenditure Natural Resource Depletion Pollution Damages
A negative GS rate denotes that in aggregate the national capital is
depleting faster than renewed. A positive GS is desirable, however, it
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still does not guarantee sustainability in the strict sense of the term,
because the indicator is based on the weak sustainability paradigm.
The weak sustainability principle assumes that natural capital can be
perfectly substituted by man-made capital.
This study calculates the World Banks measure of GS to appraise
the economic growth trajectory of Malaysia from 1990 to 2008.
Comparisons with selected economies, especially of South Korea and
Indonesia are also made. Policy implications are deliberated at the
end of the paper.
Methods
The World Bank published the first cross-country estimates of GS in
1997. It began to include them in the World Development Indicators
series in 1999. The World Bank constructs these estimates by making
appropriate adjustments to the Gross National Savings figures. The
major adjustments are to subtract a depreciation allowance for manmade capital and depletion allowances for fossil fuels, minerals,
and timber, and to add investment in human capital. Hamilton and
Clemens (1999) and Bolt, Matete, and Clemens (2002) detailed out
the theoretical constructs of GS as well as the practical methods as
used by the World Bank to make these adjustments. The methods are
similar across countries and generally rely on standard international
data sources.
Gross Domestic Savings
The first step in calculating the GS is the estimation of gross domestic
savings (GDS). Gross domestic savings, according to standard
national accounting (SNA) are calculated as the dierence between
gross domestic product (GDP) and public and private consumption.
Information about GDS for Malaysia is published regularly by
the Asian Development Bank. The data for GDS in this study was
obtained from this source.
Trend of GDS for Malaysia is shown in Figure 1. It shows a steady
growth of 8 per cent annually, from USD15,146 million in 1990 to
USD94,029 million in 2008. A sharp decline was noted in 1997/98 due
to the Asian financial crisis.
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100,000
USD Million
80,000
60,000
40,000
20,000
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source. Asian Development Bank.
Figure 1. Trend of Malaysias gross domestic saving, 19902008.

Consumption of Fixed Capital
Consumption of fixed capital represents the replacement value of the
capital used in the process of production. Data on the consumption of
fixed capital in Malaysia was taken from the World Bank, for various
years.
As shown in Figure 2, the consumption of fixed capital in Malaysia
increased markedly at 7 per cent annually from USD4,816 million in
1990 to USD25,494 million in 2008. There was a sharp fall in 1998,
which was attributed to the Asian economic crisis at the time.
USD Million
30,000
25,000
20,000
15,000
10,000
5,000
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source. The World Bank.
Figure 2. Trend of Malaysias consumption of fixed capital, 19902008.
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Education Expenditure
Education expenditure data contains operating expenditures,
wages and salaries but excludes capital investments in building and
equipment. In the GS model, current expenditures on education are
added to net domestic savings to proxy the value of investments in
human capital. Note that in the SNA, these expenditures are treated
as consumption. Data for Malaysia was taken from the Economic
Report of the Ministry of Finance Malaysia for various years.
Figure 3 indicates that the trend of education expenditure in Malaysia
was increasing annually at 78 per cent from 1990 to 2008. Like the
earlier variables, education expenditure during the 1997/98 economic
crisis dipped markedly.
12000
in USD Million
10000
8000
6000
4000
2000
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Source. Economic Report of Malaysia, Ministry of Finance Malaysia.
Figure 3. Trend of education expenditure in Malaysia, 19902008.

Depletion of Natural Resources
Depletion of natural resources is measured as the total rents on
resources extracted and harvested. There are two categories of natural
resources non-renewable and renewable resources. Non-renewable
resources are divided into mineral resources and energy resources.
In this study, mineral resources include bauxite, tin, gold and iron
ore while energy resources are petroleum, gas and coal. Depletion
costs are valued based on economic rents. The World Bank estimated
economic rents as the dierence between the value of production at
world prices and the total production costs.
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This study calculates renewable resource based on the value of
timber only. Other environmental services provided by forests such
as biodiversity, carbon storage, watershed protection and other nontimber benefits are excluded. The study also omits other natural
assets such as fisheries resources and the economic costs of soil
degradation. The World Bank estimates timber rents by multiplying
the dierence between production and increments with the product
of average price and rental price. In this study, however, forest/timber
depletion is estimated using the Net Price Method, where timber
rents are computed as the dierence between the rental value (price
less average logging cost) of log harvests and the corresponding value
of natural growth of natural and plantation forests.
Pollution Damages
Pollution damage is calculated only for CO2, using a global estimate
of marginal social cost of US$20 per metric ton of carbon emitted.
Carbon dioxide emissions, largely by-products of energy production
and use, account for the largest share of greenhouse gases globally.
Sources of Data
The data used in calculating the GS are drawn from various domestic
and international sources. Gross Domestic Savings data came from
the Asian Development Bank, Consumption of Fixed Capital from the
World Bank and Education Expenditure from the Economic Report
of the Ministry of Finance, Malaysia for 20002008, and Shahril
Marzuki (2005) for 19901999. Data for the production of minerals
and energy are sourced from the United States Geological Survey,
timber production from the Statistic Year Book Malaysia while natural
resources and CO2 production came from the World Bank.
The IMF provides data for prices for energy and minerals (except
gold) while timber prices for Malaysia are taken from the Department
of Forestry, Peninsular Malaysia. Data for CO2 prices are obtained
from the United Nations (ESCAP Division).
For the cost of production, data for bauxite came from the Saudi
Network, tin from PT Timah, Indonesia, iron ore from Ferret, Australia,
while gas and petroleum from British Petroleum. Meanwhile, data
for the cost of gas production are sourced from Bank Indonesia and
lastly, the cost of timber production in Malaysia for the 2005 base year
is based on the study by Awang Noor, et al. (2007).
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Tables A2-A6 detail out the sources of data for each element in the
calculation of Genuine Savings for Malaysia.
Genuine Savings for Malaysia

This section presents the results of the GS estimation for Malaysia
and compares with that of its GDP. The calculated GS will show if
Malaysia has been saving enough in terms of its overall capital to
sustain its socio-economic development and related achievements.
Note that negative GS rates or a marked downtrend are a serious
flag denoting unsustainability.
Results show that Malaysias GS has been positive during 1990-2008.
This indicates quite well that Malaysias economy has been operating
on the sustainability track. Figure 4 seems to suggest that the growth
path of the Malaysian GS is lower than its GDP. However, its annual
growth rate is calculated to be higher (7.7 per cent) relative to GDP
(7 per cent). However, this deviation can be strongly attributed to the
structural change in the Malaysian GDP trajectory starting in 1997/98,
which was the outset of the East Asian economic crisis.
Further investigation reveals that following the economic crisis of
1997/98, Malaysias overall GDP growth contracted by 2.2 per cent,
while GS growth declined more pronouncedly by 9 per cent. While
the positive GS achievement is enlightening, the larger decline of GS
growth in the post-crisis period causes serious concerns on Malaysias
future capital accumulation capacity. For the entire 19902008 period,
a positive association is observed between GS and GDP where a
simple regression indicates a one per cent change in GDP is associated
with a one per cent change in GS (unitary elasticity).
in USD Million
250,000
200,000
150,000
100,000
50,000
1990
1992
1994
1996
Genuine Savings
1998
2000
2002
2004
2006
2008
Gross Domestic Products
Figure 4. Genuine savings and GDP of Malaysia from 1990 to 2008.
157
IJMS 19 (1), 151174 (2012)

Figure 5 shows the plot of GS to GDP ratio. It shows a definite
pattern where the ratio was increasing in the period prior to 1997/98
but declined thereafter. This signifies to some extent the declining
capacity of the Malaysian economy to sustain the levels of overall
national capital for future productive activities.
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 5. Genuine savings ratios to GDP Malaysia.

Figure 6 tells if there are compelling reasons for immediate concerns
to change the current macroeconomic and environmental policies.
The dots in the top right quadrant indicate that the Malaysian
economy is experiencing both positive GDP and GS growth, while the
dots in the top left quadrant show negative GDP growth yet positive
GS achievement. The findings reflect that Malaysia was still capable
of investing in the present generation for future needs despite the
economic crisis.
Ratio GS to GDP
40%
35%
30%
25%
20%
15%
10%
5%
0%
-0.3
-0.2
-0.1
0.1
0.2
GDP Growth
Figure 6. Genuine savings rates against economic growth.
158
0.3
IJMS 19 (1), 151174 (2012)

Elements of Genuine Savings
Figure 7 and Table 1 list the elements of GS. The highest ranking ratio
is GDS, where from 19902008 it averages around 176 per cent. This
is followed by consumption of fixed capital at 48 per cent and cost
of energy depletion, at around 35 per cent. Education expenditure
is fourth in ranking at 18 per cent, followed by forest depletion (7
per cent), emission of CO2 (3 per cent), and lastly, cost of mineral
depletion at 0.19 per cent.
250%
200%
150%
100%
50%
0%
1990
1992
1994
1996
1998
2000
2002
2004
Energy Depletion
Forest Depletion
Mineral Depletion
CO2 emission
Consumption of Fixed Capital
Education Expenditure
2006
2008
Figure 7. Proportion of elements to genuine savings for Malaysia,

1990 to 2008.
Table 1
Average of Genuine Savings Elements Ratio for Malaysia, from 1990 to 2008
Mineral Energy
Average
0.19%
CO2
Forest
Capital Education
35.52% 3.31%
7.08%
48.44%
18.20%
GDS
176.35%
The trend for the top four elements is the same where it declines towards
1997/98 (before the Asian crisis), but increases thereafter. Forest
depletion declines steadily throughout the study period. Meanwhile
159
IJMS 19 (1), 151174 (2012)

the trends for CO2 emissions and the cost of mineral depletion have
been rather flat. For natural resources, energy depletion represents
the highest cost, where its trend falls from 19901998, then rises until
2008. Mineral depletion constitutes the lowest cost at less than 0.5 per
cent of GS throughout the study period.
Positive GS Elements
Positive GS elements refer to GDS and education expenditure. These
two trends demonstrate similar patterns (Figures 8 and 9). Both GDS
and education expenditure increase along with increases in GDP.
However, the GDP trend seems to indicate a slightly larger rate of
growth relative to GDS especially after 1998.
250,000
in USD Million
200,000
150,000
100,000
50,000
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 8. Malaysias GDS and GDP from 1990 to 2008.

With regards to changes in Malaysias education expenditure, the
ratio of education expenditure to GDP seems to fall from 199097 but
rises thereafter (Figure 9). Since education expenditure is a positive
element in GS, there is need to ensure that it contributes meaningfully
to human capital formation. Otherwise, the positive trend may result
in biased policy implication or a false sense of comfort.
There are two negative elements within the GS framework. These
are pollution costs (CO2 emission) and natural resource depletion.
For the latter, it includes depletion in renewable and non-renewable
resources.
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IJMS 19 (1), 151174 (2012)
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 9. Percentage of education expenditure to GDP in Malaysia,

19902008. Negative GS elements.
According to Figure 10, of the four negative elements of the GS,

energy depletion costs are most prominent. The percentage of energy
depletion costs to GDP declines sharply from 1990 to 1994; thereafter
increases markedly from 19942008.
16%
14%
12%
10%
8%
6%
4%
2%
0%
1990
1992
1994
Energy Depletion
1996
1998
Forest Depletion
2000
2002
2004
Mineral Depletion
2006
2008
CO2 emission
Figure 10. Percentage of resource depletion and CO2 emission costs

to Malaysian GDP, 19902008.
161
IJMS 19 (1), 151174 (2012)

For the forest sector, timber depletion rate continues to fall over
the years but at a lower rate from 1997-2008. For CO2 emission, the
depletion rate centers around 1 per cent of GDP, while for mineral
depletion, it is mainly under 1 per cent of GDP throughout the years.
This study also calculates the cost of forest depletion using the El
Serafy Method (El Serafy, 1989) and Change in Asset Value Method
(CAVM). The merits and weaknesses of each of these methods have
been well established in the literature. Results from the two methods
are compared with that of the Net Price Method and the World Bank
approach. Figure 11 shows each method yields dierent results but a
consistent pattern from 1990 to 2008. The highest depletion rates are
derived from the CAVM, followed by the El Serafy, this study (Net
Price Method), and the World Bank approach. Note the proportion of
forest depletion cost to GDP calculated using the Net Price Method
is higher than the World Bank estimates. The dierence is mainly
attributed to dierences in approaches, price and cost parameters
used in calculating timber rents.
7%
6%
5%
4%
3%
2%
1%
0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
El Serafy
The CAV
Net Price
The World Bank
Figure 11. Comparison of results for cost of forest depletion to GDP

in Malaysia, 1990 to 2008.
Adjustments to Genuine Savings

Figure 12 summarizes the relative adjustments to GS for Malaysia, for
1990 and 2008.
162
IJMS 19 (1), 151174 (2012)
GS
GDS
Education
Capital
Emission
2008
Mineral
1990
Forest
Energy
-60000
-40000
-20000
20000
Energy
Forest
Mineral
Emission
2008
-34501
-1051
-137
1990
-3897
-1665
-45
40000
60000
80000
100000
120000
Capital Education
GDS
GS
-1562
-25494
10950
94029
42234
-273
-4816
1834
15146
6285
Figure 12. Relative GS component for Malaysia, 1990 and 2008 (in
USD million).
Both GDS and education expenditure have substantial positive

impacts and their growth rates are fairly high during the study
period. On the other hand, energy and fixed capital depletion pose
strong downward impacts on GS.
Comparison with the World Banks Estimates
The World Bank produces GS estimates for many countries in the
world, including Malaysia. The World Bank uses a longer data series,
from 1960 to 2009. Comparison of our GS calculation with that of
the World Bank will be important to ascertain if the two approaches
produce consistent results.
Figure 13 compares the GS proportion to GDP for Malaysia between
our analysis and the World Bank from 19902007. While the trend of
GS is somewhat similar, the value of GS based on our calculation is
consistently higher than the World Bank estimates.
163
IJMS 19 (1), 151174 (2012)
40%
35%
30%
25%
20%
15%
10%
5%
0%
1990
1992
1994
1996
1998
World Bank
2000
2002
2004
2006
Analysis
Figure 13. Comparison of calculated GS to GDP ratio with the

World Bank estimates, 19902007.
Experiences of Other Countries

This section overviews the experiences of GS in other countries,
namely South Korea and Indonesia based on World Bank data on GS.
1200000
in USD Millions
1000000
800000
600000
400000
200000
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
GDP
Source. Calculated by the authors using World Bank data.
Figure 14. GDP and GS trend for South Korea from 1990 to 2008.
South Korea
South Koreas economic growth has been very rapid and robust, at
8.34 per cent annually from 1990 to 2008. Expectedly, her GS increases
164
IJMS 19 (1), 151174 (2012)

along with GDP (Figure 14). In contrast to Malaysia, the ratio of South
Koreas GS to GDP from 1990 - 2001 has been declining but depicts
a general uptrend thereafter (Figure 15). Overall, like Malaysia, the
GS values reflect South Koreas economy is moving on a sustainable
growth path.
30%
25%
20%
15%
10%
5%
0%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 15. Ratio of genuine savings to GDP for South Korea from
1990 to 2008.
600000
in USD Millions
500000
400000
300000
200000
100000
0
1990
1992
1994
1996
GDP
1998
2000
2002
2004
2006
2008
Genuine Savings
Source. World Development Indicators, World Bank Publication.
Figure 16. GDP and GS for Indonesia, 1990 to 2008.
165
IJMS 19 (1), 151174 (2012)

Indonesia
Indonesia constitutes one of the biggest natural resource-based
economies in the world. Hence, it will be important for policy makers
in the country to monitor its GS performance continuosly. In Figure
16, Indonesias GDP is shown to rise very rapidly at some 11 per cent
annually. However, its GS while positive is rather flat (Figure 17). The
divergence between GDP and GS growth for Indonesia seems to be
the largest relative to Malaysia and South Korea. In fact the trend of
Indonesias GS to GDP ratio decreases very pronouncedly from 19.5
per cent in 1990 to 6.7 per cent in 2008.
25
in percent (%)
20
15
10
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 17. Ratio of GS to GDP in Indonesia, 19902008.
Figure 18 shows the calculated negative GS elements for energy,

minerals, CO2 emission damages and consumption of fixed capital for
Indonesia. Note in the World Bank calculation, net forest depletion
has not been estimated for Indonesia.
For Indonesia, the largest two GS negative elements are consumption
of fixed capital and energy depletion. Both trends are rising and
resemble that of Malaysia. Other negative elements are somewhat
stable and below 1 per cent to GDP throughout.
166
IJMS 19 (1), 151174 (2012)
12
in Percentage (%)
10
8
6
4
2
0
1990
1992
1994
1996
1998
2000
2002
2004
carbon dioxide damage
consumption of fixed capital
energy depletion
mineral depletion
net forest depletion
particulate emission damage
2006
2008
Source. Calculated from World Development Indicators, World Bank Publication.
Figure 18. Proportion of negative GS elements to GDP for Indonesia,

19902008.
Concluding Remarks and Policy Implications

The GS indicator, unlike the conventional GDP, provides information
if an economy is moving on the path of sustainability, albeit in the
weak sustainability sense. This study calculated the GS for Malaysia
from 1990 - 2008. The study produces higher GS estimates than that of
the World Bank, however, the trend pattern is similar. Results indicate
Malaysias economy is operating on the path of sustainability which
suggests that her overall productive capacity is not reduced over
time. However, the capacity of the Malaysian economy to sustain its
wealth accumulation on a per GDP basis seems to decline markedly
following the Asian financial crisis of 1997/98. Depletion in natural
resources has also been high and increasing, especially for energy
resource. Appropriate strategies need to be devised to increase further
investment in reproducible and meaningful human capital to oset
the depletion of natural resources as well as physical capital. It is
also imperative to ensure that the education sector is truly capable to
produce meaningful future human and social capital as they feature
very prominently as a positive element in the GS calculation.
167
IJMS 19 (1), 151174 (2012)

The GS for South Korea and Indonesia has also been positive. However,
for Indonesia, the ratio of GS to GDP in the post-Asian financial crisis
period declined more pronouncedly relative to Malaysia and South
Korea. Overall findings suggest Malaysias GS performs better than
Indonesia and comparable to that of South Korea.
The GS calculation is based on capital approach. This implies that as
assets are increasingly depleted, the shadow price of the asset will
be magnified. Therefore the value for natural capital depreciation
becomes increasingly large. It also ignores the measurement of most
non-marketed goods and services including critical environmental
resources. Methods are available (for instance the Contingent Valuation
approach) to measure the changes in the stocks of critical natural
capital, however, this poses a number of practical and conceptual
diculties at least in the short-run. It is also important to be aware
that the GS approach relies on the weak measure of sustainability,
where it implicitly assumes that all assets can substitute each other in
generating economic growth.
In view of the importance of the GS indicator to reflect the
macroeconomic sustainability path of an economy, it is recommended
that the Malaysian national statistical department look into ways to
develop a system where pertinent GS data inputs can be obtained
on a routine basis from the respective line agencies. This will enable
the calculation of the GS in a fast and ecient manner, yet yielding
reliable estimates.
For future research, it will be a strategic initiative for the Malaysian
GS to be calculated and appraised for the various states or regions,
especially the relatively resource-richer states such as Terengganu,
Kelantan, Sabah and Sarawak. It will also be imperative for future
research to consider more comprehensive inclusion of the GS
elements and to enhance the evaluation methodology for more
vigorous appraisals of the macro sustainability path of the Malaysian
economy.
References
Alisjahbana, A. S., Arief, A. Y., & Budiono. (2003). Measuring sustainable
development in Indonesia: Genuine Savings and changes in wealth
per capita. EADN Working Paper No. 20 (2003) Final report of
an EADN research grant project.
168
IJMS 19 (1), 151174 (2012)

Bolt, K., Matete, M., & Clemens, M. (2002). Manual for calculating
adjusted net savings. Environment Department, World Bank.
El Serafy, S. (1989). The proper calculation of income from depleting
natural resources. In Y. J. Ahmad, S. El Serafy & E. Lutz,
(Eds.), Environmental accounting for sustainable development.
Washington, D.C.: The World Bank.
Glyn, E., & Alex, W. (1999). The world banks genuine savings indicator:
A useful measure of sustainability? October 1999. Bretton Woods
Project.
Kirk, H., & Michael, A. C. (1999). Genuine savings rates in developing
countries. World Bank Economic Review, 13(2), 333356.
Lin, G. T. R., & Chris, H. (2004). Genuine savings measurement
and its application to the United Kingdom and Taiwan. The
Developing Economies, XLII-1 (March2004), 341
OECD. (2001). Sustainable development Critical issues. Organization
for Economic Co-operation and Development, Paris.
Pearce, D. W., Markandya A., & Barbier, E. (1989). Blueprint for a green
economy. London: Earthscan Publications.
Pearce, D. W., & Atkinson, G. (1993). Capital theory and the
measurement of sustainable development: An indicator of
weak sustainability. Ecological Economics, 8(1993), 103108.
Shahril Marzuki, Shahril. (2005). Mengurus dan membiayai pendidikan
di Malaysia. PTS Professional Publishing.
Vincent, J. F. R. (August, 2000). Genuine savings in Latin America:
Estimates for 197397. Center for International Development,
Harvard University. 2000. Retrieved from www.cid.harvard.
edu
World Commission. (1987). Our common future (Brundtland Report).
Presentation of the Report of the World Commission on
Environment and Development to UNEPs 14th Governing
Council Session.
World Conservation Strategy. (1980). Living resource conservation for
sustainable development. (IUCN/WWF/UNEP, 1980).
World Development Indicators. (WDI). Various years. World Bank
Publications.
169
IJMS 19 (1), 151174 (2012)

Appendix
Table A1
Value of GS and GDP for Malaysia (in million USD)
Year
Genuine Savings*
1990
6,285.31
44,024.18
1991
7,363.41
49,133.85
1992
11,995.41
59,151.29
1993
16,186.37
66,894.45
1994
19,154.75
74,480.82
1995
23,347.92
88,832.45
1996
29,021.23
100,852.00
1997
29,633.42
100,169.00
1998
24,920.58
72,175.31
1999
27,023.67
79,148.42
2000
25,676.77
93,789.74
2001
23,645.33
92,783.95
2002
26,862.15
100,846.00
2003
28,336.70
110,202.00
2004
30,933.84
124,749.00
2005
29,204.47
137,848.00
2006
33,155.42
156,523.00
2007
39,742.87
185,981.00
2008
42,233.58
221,161.00
* Calculated by the authors
170
Energy
Depletion
3,896.59
3,947.59
3,159.78
2,789.41
2,416.97
3,135.65
4,663.48
4,427.87
3,703.84
3,534.37
8,609.53
6,879.40
6,763.79
8,793.19
12,253.56
18,729.34
21,738.14
24,180.12
34,500.80
Forest
Depletion
1,664.77
1,680.73
2,070.57
1,764.89
1,697.52
1,589.40
1,537.95
1,474.58
688.54
739.93
814.27
647.12
752.17
819.91
871.58
920.27
946.80
1,063.15
1,051.44
Source. Calculated by the authors.
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year
Mineral
Depletion
45.41
34.13
38.01
18.61
23.54
27.05
28.87
27.40
24.81
24.54
21.98
17.10
16.11
26.53
38.98
68.41
63.41
89.49
137.50
CO2
Emission
273.22
342.73
384.89
479.68
502.09
660.18
696.26
704.72
651.83
625.05
749.13
828.39
867.90
1,057.22
1,129.81
1,226.13
1,297.13
1,460.57
1,561.92
Consumption of Education
Fixed Capital
Expenditure
4,815.55
1,834.47
5,436.02
2,034.86
6,686.93
2,615.63
7,660.96
2,754.76
8,622.27
2,923.11
9,928.90
3,417.98
11,413.83
4,132.85
11,291.90
3,598.76
7,784.01
2,645.77
8,610.86
3,015.26
10,747.79
3,400.79
10,597.15
3,795.26
11,594.20
4,468.95
12,761.72
5,008.68
14,603.56
5,662.37
15,007.74
6,088.58
17,261.36
6,975.94
21,041.95
8,855.97
25,493.74
10,950.20
Value of Positive and Negative Elements of Malaysias GS (in million USD)
Table A2
Gross Domestic
Savings
15,146.38
16,769.75
21,719.96
26,145.16
29,494.03
35,271.12
43,228.77
43,961.13
35,127.84
37,543.16
43,218.68
38,819.21
42,387.37
46,786.58
54,168.95
59,067.78
67,486.33
78,722.18
94,028.77
IJMS 19 (1), 151174 (2012)
171
IJMS 19 (1), 151174 (2012)

Table A3
Sources of Data for GDS, Consumption of Fixed Capital and Education
Expenditure
No. Data
1 Gross Domestic
Savings
Sources
The Asian Development
Bank (Key Indicators for
Asia and the Pacific 2009:
Malaysia)
2 Consumption of The World Bank
Fixed Capital
(Indicator for Malaysia)
3 Education
- Mengurus dan
Expenditure
Membiayai Pendidikan
di Malaysia by Shahril
Marzuki (2005)
- Economic Report of
Malaysia, various years
URL
http://www.adb.org/
Documents/Books/Key_
Indicators/ 2009/pdf/MAL.
pdf
http://data.worldbank.
org/country/malaysia
http://www.treasury.
gov.my/index
Table A4
Sources Data for Production of Natural Resources and CO2
No. Data
1 Mineral
- Bauxite
Sources
U.S. Geological Survey
- Tin
- Gold
- Iron Ore
2 Energy
- Petroleum U.S. Geological Survey
- Gas
- Coal
3 Timber
Department of Statistics
Malaysia. Statistic Year Book
of Malaysia (Production of
Logs Malaysia)
4 CO2
The World Bank (Indicator

for Malaysia)
172
URL
http://minerals.usgs.gov/minerals/
pubs/country/
pubs/country/
pubs/country/
pubs/country/
pubs/country/
pubs/country/
pubs/country/
http://data.worldbank.org/country/
malaysia
IMF Primary Commodity Prices
Measuring Worth
- Tin
- Gold
- Iron Ore
CO2
ESCAP, United Nations
Department of Forestry, Forestry Statistics,

Peninsular Malaysia (Average Local Price of Logs
by Species)
- Coal
Timber
http://www.imf.org/external/np/res/commod/index.asp
- Gas
http://www.unescap.org
http://www.measuringworth.com/datasets/gold/result.php
URL
- Petroleum IMF Primary Commodity Prices
Energy
Sources
- Bauxite
Mineral
Data
No.
Sources of Data for Price of Natural Resources and CO2
Table A5
IJMS 19 (1), 151174 (2012)
173
174
PT. Timah (Financial Report)

Info Mine
Ferret, AME Group Australia
- Tin
- Gold
- Iron Ore
Tim Bank Indonesia (2007). Kerjasama Perdagangan

Internasional: Peluang dan Tantangan bagi Indonesia
- Coal
Awang Noor, A.G., Mohd Syauke, M.S. and Tuan
Marina, T.I. (2007). Analysis of Logging Cost in
Pahang. Paper Presented at the Department of
Forestry Seminar on Economic Valuation of Forest
Goods and Services, 2007
BP Statistical Review of World Energy June 2010
- Gas
Timber
BP Statistical Review of World Energy June 2010
- Petroleum
Energy
The Saudi Network
Mineral
Sources
- Bauxite
Data
No
Sources of Data for Production Cost of Natural Resources and CO2
Table A6
http://bp.com/statisticalreview
http://bp.com/statisticalreview
http://www.ferret.com.au/n/Australia-boasts-lowestiron- ore-production-costs-in-2001
http://www.infomine.com/index/pr/PA106888.PDF
http://www.timah.com/ina/report/
http://www.the-saudi.net/business-center/jvmining.
htm
URL
IJMS 19 (1), 151174 (2012)
IJMS 19 (1), 175191 (2012)
HUBUNGAN ANTARA KERJA BERPASUKAN

DENGAN KEPUASAN KERJA KETUA PANITIA
SEKOLAH MENENGAH
RELATIONS BETWEEN TEAMWORK AND WORK
SATISFACTION AMONG THE PANEL HEADS IN
SECONDARY SCHOOLS
ARSAYTHAMBY VELOO
KIEW HWEE BIN
Pusat Pengajian Pendidikan dan Bahasa Moden
Abstrak
Kajian ini bertujuan untuk mengenal pasti perbezaan kepuasan kerja ketua
panitia dalam kerja berpasukan berdasarkan jantina, umur dan pengalaman
kerja. Di samping itu kajian ini juga bertujuan mengenal pasti penyumbang
utama dan hubungan antara lima faktor kerja berpasukan iaitu tindakan
pemimpin, struktur perwatakan pasukan, struktur perwatakan individu
dan hubungan interpersonal dengan kepuasan kerja ketua panitia. Subjek
kajian ini terdiri daripada kesemua 141 ketua panitia daripada sembilan
buah sekolah menengah kebangsaan harian di daerah Kuala Krai, Kelantan.
Alat ukur kerja berpasukan telah diubah suai daripada kajian Karakus
dan Tremen (2008) manakala alat ukur kepuasan kerja telah diubah suai
daripada Model Teori Dua Faktor Herzberg (1966) dalam Tay (2007).
Kerja berpasukan diukur daripada empat dimensi iaitu tindakan pemimpin
(8 item), struktur perwatakan pasukan (7 item), struktur perwatakan
individu (8 item) dan hubungan interpersonal (8 item) manakala kepuasan
kerja diukur menggunakan 20 item. Dapatan kajian ini dianalisis dengan
menggunakan program Statistical Package for Social Science (SPSS)
versi 16.0. Kajian ini menggunakan ujian-t, ANOVA satu hala, Kolerasi
Pearson dan regrasi berganda untuk menguji hipotesis kajian. Dapatan
kajian ini menunjukkan bahawa wujud perbezaan yang signifikan antara
jantina dan umur dengan kepuasan kerja tetapi tiada perbezaan yang
signifikan dengan pengalaman kerja. Keputusan kajian ini menunjukkan
terdapat hubungan antara tindakan pemimpin, struktur perwatakan
pasukan, struktur perwatakan individu dan hubungan interpersonal.
Kajian ini juga menunjukkan tindakan pemimpin, struktur perwatakan
pasukan dan hubungan interpersonal menjadi peramal kepada kepuasan
kerja. Hasil kajian mencadangkan pihak sekolah, Jabatan Pendidikan Daerah
serta Jabatan Pendidikan Negeri yang terlibat dengan program latihan dan
175
IJMS 19 (1), 175191 (2012)

pembangunan harus menitikberatkan aspek peningkatan pengetahuan dan
kemahiran kerja berpasukan khususnya kepada ketua-ketua panitia dalam
aspek kemanusiaan, perancangan dan penyelarasan tugas.
Kata kunci: Kepuasan kerja, kerja berpasukan, jantina, umur, pengalaman
kerja.
Abstract
Purpose - The aim of this research is to identify the head panels job satisfaction
dierences in teamwork based on gender, age and working experiences. This
research also aims to identify the main prediction and relationship between
five teamwork factors, namely leadership actions, structural characteristics
of the work group, individual characteristics, interpersonal relationship and
job satisfaction of the panel head.
Design/Methodology/Approach The research subjects were 141 school
panel heads from all nine daily secondary schools in Kuala Krai District,
Kelantan. The teamwork instruments were adapted from the research of
Karakus dan Tremen (2008) while the instruments of job satisfaction were
adapted from the model of the Two Factors Theory of Herzberg (1966) in Tay
(2007). The instruments of team work consisted of four dimensions which
were leadership actions (8 items), structural characteristics of the work group
(7 items), individual characteristics of members (8 items), and interpersonal
(8 items). Meanwhile, job satisfaction was measured by 20 items. The results
were analysed using the Statistical Package for Social Science version 16.0.
The hypotheses were tested using t-test, ANOVA, Pearson Correlation, and
Multiple Regression Analysis.
Findings - The result showed that there was a significant dierence between
gender and age towards job satisfaction but there was no significant dierence
with job experiences. The results also showed that there were significant
relationships between leadership actions, structural characteristics of the
work group, individual characteristics of members, interrelationship among
members and job satisfaction. The results also indicated that leadership
actions, structural characteristics of the work group and interrelationship
among members were the predictors of job satisfaction.
Originality/Value - The results suggested that the parties involved
schools, district and state education departments should emphasise on
teamwork knowledge and skills specifically to the panel heads in the apects
of humanities, planning and task coordinations in training and development
programmes.
Keywords: Job satisfaction, team work, gender, age, working experience.
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Pengenalan
Konvensyen Kumpulan Kerja Cemerlang (KKC) mengetengahkan
budaya kerja berpasukan sebagai nilai tambah kepada hasil kerja
yang diusahakan. Hal ini kerana sumber tenaga manusia merupakan
kunci utama yang amat penting bagi sesebuah organisasi mencapai
kualiti perkhidmatan yang diharapkan dan menepati kehendak orang
ramai. KKC dianggap sebagai teknik pengurusan yang dipelopori dan
diperkenalkan oleh negara Jepun sebagai kaedah pencapaian yang
paling humanistic (Pelita Brunei, 2008, November 5). Usaha-usaha
untuk merealisasikan visi dan misi sekolah amat bergantung kepada
ketua panitia untuk memainkan peranan dalam mengamalkan satu
pendekatan kerja yang sistematik dan berkesan. Menurut Hadyn
dan Mc Donnel (1996), pasukan yang efektif terdiri daripada dua
atau lebih individu yang mempunyai matlamat khusus untuk dicapai
dan semua ahli terlibat secara aktif untuk merealisasikan matlamat
secara usaha sama. Hal ini menunjukkan kerjasama guru di sekolah
penting bagi mewujudkan kerja berpasukan kerana guru juga saling
bergantung antara satu sama lain. Kerja berpasukan dalam kalangan
guru juga dapat menggalakkan perasaan, inovasi dan perkembangan
fikiran ke arah penciptaan yang lebih kreatif. Kerja berpasukan juga
merupakan salah satu dimensi yang boleh menyumbang ke arah
peningkatan kualiti pendidikan.
Dalam hal-hal pengurusan sekolah, proses penyelesaian masalah dan
membuat keputusan tidak lagi hanya tertumpu kepada pengurusan
atasan, sebaliknya kerja berpasukan diberi kuasa dan tanggungjawab
untuk menyelesaikan sebarang masalah yang timbul dalam organisasi.
Keputusan yang dibuat dalam sesebuah organisasi melibatkan operasi
kerja bagi memastikan matlamat pasukan kerja dan organisasi tercapai
(Lussier & Achua, 2000). Katzenbach dan Smith (1993) menyatakan
bahawa dalam sebarang keadaan, kombinasi pelbagai kemahiran,
pengalaman dan pertimbangan dalam pasukan pasti mendapat hasil
yang lebih baik daripada kumpulan individu yang lebih fleksibel
dan lebih produktif. Dengan itu, visi, misi dan wawasan sesebuah
organisasi dapat dicapai dengan efektif melalui kerja berpasukan.
Selain itu, kerja berpasukan juga dapat meningkatkan semangat,
kepuasan dan motivasi ahli organisasi. Menurut Zaidatol Akmaliah
(1990), setiap organisasi perlu dikelolakan dengan rapi, sempurna
dan teratur supaya setiap kakitangannya dapat berhubung dan
bertindak antara satu sama lain bagi mencapai matlamat pendidikan
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IJMS 19 (1), 175191 (2012)

yang ditentukan selaraskan dengan Falsafah Pendidikan Negara.
Sehubungan itu, pengetua memainkan peranan yang pelbagai semasa
mereka mengurus sekolah agar selaras dengan hasrat serta matlamat
Falsafah Pendidikan Negara.
Pernyataan Masalah
Menurut Somech (2008), guru telah dilatih untuk bekerja
bersendirian di dalam kelas tanpa melibatkan orang lain. Oleh
itu, guru kebiasaannya hanya bergantung kepada bakat dan
kemahiran untuk berhadapan dengan masalah di dalam kelas dan
meningkatkan profesionalisme perguruan. Perubahan kerja dalam
pasukan menimbulkan rasa kuasa autonomi mereka tergugat dan
menimbulkan konflik. Bagi membentuk pasukan kerja yang efektif
merupakan satu agenda yang menjadi keutamaan pihak pengurusan
sekolah. Isu-isu pendidikan tidak lagi hanya berkaitan sistem
pendidikan dan persekolahan, tetapi juga melibatkan pelbagai faktor
lain yang mempengaruhi kualiti pendidikan. Oleh itu, pendekatan
pengurusan sekolah haruslah holistik iaitu melibatkan semua pihak
dalam membuat keputusan. Oleh itu, kerja berpasukan amat penting
diamalkan di sekolah untuk menentukan kejayaan sesebuah sekolah
(Buletin NUTP, 2008, Februari). Amalan pengurusan di sekolah
kurang mementingkan kerja berpasukan. Biasanya pasukan atau
kumpulan yang wujud di sekolah lebih ke arah pembentukan pasukan
fungsi. Kerja berpasukan yang wujud di sekolah adalah untuk
memenuhi struktur organisasi dan antara kerja berpasukkan yang
wujud seperti panitia mata pelajaran, bidang mata pelajaran, unit hal
ehwal pelajar dan sebagainya. Kajian yang dijalankan oleh Tay (2007)
antara kepimpinan kerja berpasukan pengetua dengan kepuasan
kerja ketua panitia di daerah Keluang di Johor menunjukkan guruguru di sekolah menengah menjalankan tugas masing-masing tanpa
adanya semangat kerja berpasukan. Hal ini menunjukkan isu kerja
berpasukan masih wujud dalam kalangan ketua panitia di sekolah
menengah kebangsaan harian.
Tinjauan Literatur
Konsep Kerja Berpasukan
Kerja berpasukan membolehkan ahli-ahli pasukan untuk merancang,
mengatur dan mengkoordinasikan aktiviti-aktiviti pasukan untuk
mencapai matlamat yang ditetapkan (Pineda & Lerner, 2006). Ruiz
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Ulloa dan Adams (2004) telah mereka satu model untuk memudahkan
pengukuran terhadap kerja berpasukan dan telah mengenal pasti
tujuh konstruk yang menyumbang kepada kerja berpasukan iaitu
penyelesaian konflik, komunikasi yang berkesan, kepercayaan
dan saling bergantungan, matlamat yang jelas, tujuan yang sama,
peranan yang jelas dan keselamatan dari segi psikologi. Penyelesaian
konflik merujuk kepada tindakan dan prosedur yang diambil apabila
sesuatu konflik itu berlaku memudahkan penyelesaian masalah,
meningkatkan lagi persefahaman antara ahli pasukan, mencari
alternatif yang lain, meningkatkan lagi penglibatan ahli yang terlibat
dalam konflik dan meningkatkan proses membuat keputusan
(Capozzoli, 1995). Karakus dan Treme (2008), mengklasifikasikan
kerja berpasukan kepada empat dimensi iaitu tindakan pemimpin,
struktur perwatakan ahli dalam kumpulan, struktur perwatakan ahli
secara individu dan hubungan interpersonal ahli pasukan.
Perlaksanaan Kerja Berpasukan di Sekolah
Menurut Mohamad Najib (2007), sistem sekolah mempunyai
fungsi-fungsi yang terarah ke satu matlamat yang telah ditentu oleh
pemimpin dan pentadbirnya. Matlamat sistem tersebut bertujuan
untuk mencapai kecemerlangan pendidikan negara agar dapat
melahirkan para pemimpin dan tenaga pakar untuk membangunkan
negara. Di sekolah, kerja berpasukan dilaksanakan dalam bentuk
jawatankuasa yang terdiri daripada guru penolong, guru-guru
kanan mata pelajaran dan ketua panitia bagi membantu pengetua.
Ketua panitia terdiri daripada guru-guru yang berpengetahuan dan
berpengalaman dalam mata pelajaran yang dipertanggungjawab
kepadanya. Tugas ketua panitia adalah mengetuai kumpulan guru
yang mengajar mata pelajaran tertentu di sekolah. Panitia mata
pelajaran biasanya berperanan sebagai badan khas yang merancang
aktiviti mata pelajaran untuk keperluan sepanjang tahun bagi tujuan
meningkatkan preatasi akademik pelajar.
Kepuasan Kerja Ketua Panitia berdasarkan Jantina, Umur dan
Pengalaman Kerja
Kajian-kajian lepas mengenai jantina dengan kepuasan kerja
mendapati jantina mempunyai perbezaan yang signifikan dengan
kepuasan kerja (Zahavy & Somech, 2001; Soon, 2002). Kajian-kajian
yang lepas juga mendapati guru lelaki mempunyai kepuasan kerja
yang lebih tinggi berbanding guru perempuan (Cheung & Sherling,
1999; Mertler, 2002;). Namun demikian, ada juga kajian yang
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menunjukkan kepuasan kerja guru perempuan adalah lebih tinggi
daripada guru lelaki (Ma & MacMillan, 1999; Bull, 2005). Dapatan
kajian ini menunjukkan kepuasan kerja berpasukan berdasarkan
jantina tidak konsisten dengan dapatan kajian lepas.
Soon (2002) mendapati umur mempunyai perbezaan yang signifikan
dengan kepuasan kerja dan kajian Ma dan MacMillan (1999)
menunjukkan guru yang lebih berumur mempunyai kepuasan kerja
yang lebih rendah berbanding dengan guru yang lebih muda. Namun,
kajian Bull (2005) menunjukkan dapatan yang sebaliknya, iaitu guru
yang lebih berumur menunjukkan kepuasan kerja yang lebih tinggi
berbanding dengan guru muda. Hal ini berpunca daripada suasana
pekerjaan dan ganjaran yang lebih baik. Selain itu, ada kajian yang
menunjukkan umur tidak memberikan kesan kepada kepuasan kerja
(Zahavy & Somech, 2001; Perrachione, Rosser & Petersen, 2008).
Pengalaman kerja juga tidak mempunyai hubungan dengan kepuasan
kerja (Zahavy & Somech, 2001; Perrachione, Rosser & Petersen, 2008).
Kajian Ma dan MacMillan (1999) mendapati guru yang lebih tua dan
mempunyai pengalaman kerja menunjukkan kepuasan kerja yang
lebih rendah berbanding dengan guru yang lebih muda dan tidak
mempunyai pengalaman kerja. Dapatan kajian lain menunjukkan
guru yang lebih berpengalaman menunjukkan kepuasan kerja yang
lebih tinggi berbanding dengan guru yang kurang berpengalaman
(Bull, 2005).
Kepuasan Kerja Berpasukan dengan Tindakan Pemimpin
Grin, Petterson dan West (2001) dalam kajian mereka mendapati
sokongan daripada ketua mempunyai hubungan yang positif dengan
kepuasan kerja berpasukan. Selain itu, mereka juga mendapati
kepuasan kerja berpasukan berkait dengan autonomi pekerjaan itu
sendiri seperti kemahiran kerja, tanggungjawab dan kepelbagaian
kerja. Begitu juga dengan kajian Conley, Fauske dan Pounder (2004)
yang mendapati ketua boleh menyokong dengan memberikan
pengiktirafan dalam bentuk yang tidak formal seperti memberikan
motivasi dalam tugasan guru.
Menurut Karakus dan Treme (2008), pengurusan sekolah haruslah
adil dalam pembangunan guru dari segi moral, komunikasi, iklim
pasukan dan norma sekolah yang seharusnya disuntik dalam
kebudayaan sekolah dan kumpulan kerja harus dibentuk berasaskan
keadilan. Hal ini memberi peluang kepada guru untuk dimotivasikan
dan digalakkan untuk bekerja bersama-sama dalam satu pasukan.
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Kepuasan Kerja Berpasukan dengan Struktur Perwatakan Pasukan
Kajian Ruiz Ulloa dan Adams (2004) mendapati penyelesaian
konflik tidak menyumbang kepada keberkesanan pasukan. Hanya
komunikasi yang berkesan, saling bergantungan, keselamatan dari
segi psikologi, tujuan yang sama, peranan dan matlamat yang jelas
menyumbang kepada keberkesanan sesebuah kerja berpasukan.
Selain itu, sikap yang positif juga mempunyai hubungan dengan
kepuasan kerja dalam kerja berpasukan. Menurut Hee dan Park (2008)
kepuasan kerja berpasukan guru bergantung kepada perwatakan
pasukan.
Kepuasan Kerja Berpasukan dengan Struktur Perwatakan Ahli
secara Individu
Stevens and Campion (1994) dalam kajian menghuraikan dan
mengesahkan bahawa pengetahuan, kemahiran dan kemampuan
merupakan elemen yang penting kepada individu supaya mereka
berfungsi dengan berkesan dalam kerja berpasukan. Hal ini
termasuk pengetahuan, kemahiran, kemampuan untuk penyelesaian
konflik, penyelesaian masalah secara kolaboratif, komunikasi,
penetapan matlamat dan prestasi pengurusan serta perancangan dan
penyelarasan tugas. Setiap pemboleh ubah mempunyai hubungan
positif dengan kepuasan kerja dalam menjalankan tugas secara
berpasukan. Begitu juga, Hee dan Park (2008) mendapati kepuasan
kerja berpasukan guru adalah bergantung kepada perwatakan
individu guru itu sendiri.
Kepuasan Kerja Berpasukan dengan Hubungan Interpersonal
Hubungan interpersonal iaitu komunikasi yang terbuka menyumbang
secara signifikan kepada kepuasan kerja ahli dalam satu-satu pasukan
(Miles & Mangold, 2002; Soon, 2002; Pineda & Lerner, 2006). Hee
dan Park (2008) juga mendapati faktor kolaboratif dan bekerjasama
antara ahli dalam kumpulan mempunyai hubungan positif dengan
kepuasan kerja guru namun pengurusan konflik tidak mempunyai
hubungan dengan kepuasan kerja. Kerja secara kolaboratif dengan
rakan setugas merupakan faktor yang mempengaruhi kepuasan kerja
(Zembylas & Papanastasiou, 2006).
Objektif Kajian
(i)
Mengenal pasti perbezaan kepuasan kerja ketua panitia dalam

kepimpinan kerja berpasukan berdasarkan jantina, umur dan
pengalaman kerja.
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(ii)
(iii)
Mengenal pasti hubungan antara tindakan pemimpin, struktur

perwatakan pasukan, struktur perwatakan individu dan
hubungan interpersonal kerja berpasukan dengan kepuasan
kerja ketua panitia.
Menentukan penyumbang utama pemboleh ubah-pemboleh
ubah kerja berpasukan dengan kepuasan kerja ketua panitia.
Metodologi Kajian
Kajian ini melibatkan seramai 141 orang ketua panitia daripada
sembilan buah sekolah menengah kebangsaan harian dari Daerah
Kuala Krai, Kelantan. Bilangan ketua panitia untuk semua sekolah
adalah tidak sama kerana bergantung kepada bilangan mata
pelajaran yang ada dalam sekolah tersebut. Daripada 141 ketua
panitia, 63 (44.7%) adalah lelaki dan 78 (55.3%) perempuan. Dari
segi umur ketua panitia, 48 (34%) berumur di antara 2535 tahun,
70 (49.6%) berumur 3645 tahun dan 23 (16.3%) lebih daripada 45
tahun. Pengalaman menjadi ketua panitia di sekolah menengah juga
berbeza iaitu kurang daripada lima tahun sebanyak 82 (58.2%), 41
(29.1%) antara 610 tahun dan 18 (12.8%) lebih daripada 11 tahun.
Instrumen Kajian
Dua jenis alat ukur digunakan dalam kajian ini iaitu alat ukur
kerja berpasukan dan kepuasan kerja. Alat ukur kerja berpasukan
diadaptasi daripada Karakus dan Tremen (2008) yang bertajuk How
our schools can be more synergic: determing the obstacles of teamwork? Alat
ukur ini mengandungi 32 item yang telah diterjemahkan ke dalam
bahasa Melayu dan kemudian diterjemahkan semula ke dalam
bahasa Inggeris dengan kaedah back translation (Brislin, 1970). Kerja
berpasukan terdiri daripada empat dimensi iaitu kepimpinan kerja
berpasukan, struktur pewatakan kumpulan, struktur perwatakan
individu dan hubungan interpersonal yang masing-masing terdiri
daripada lapan item. Alat ukur kepuasan kerja mengandungi
sebanyak 20 item yang diambil daripada kajian Tay (2007)
menggunakan alat ukur yang mengukur kepuasan kerja dengan
kepuasan kerja berpasukan ketua-ketua panitia di sekolah menengah
kebangsaan di Kluang Johor. Kajian beliau menggunakan empat
pilihan jawapan dari skala 1 (sangat tidak setuju), 2 (tidak setuju), 3
(setuju) dan 4 (sangat setuju) seperti mana yang digunakan oleh Tay
(2007). Semua data yang dikumpul dianalisis dengan menggunakan
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ujian-t, Anova satu hala, Kolerasi Pearson dan ujian regrasi berganda
dengan menggunakan program Statistical Packages for Social Sciences
Version 16.0 (SPSS).
Dapatan Kajian
Profil Ketua Panitia
Seramai 141 orang ketua panitia daripada sembilan buah sekolah
menengah harian di daerah Kuala Krai, Kelantan terlibat dalam
kajian ini. Daripada 141 ketua panitia, 63 (44.7%) ketua panitia adalah
lelaki dan 78 (55.3%) perempuan. Umur ketua panitia menunjukkan
48 (34%) antara 2535 tahun, 70 (49.6%) antara 3645 tahun dan
23(16.3%) lebih daripada 45 tahun. Pengalaman ketua panitia kurang
daripada 5 tahun iaitu 82 (58.2%), 41 (29.1%) antara 610 tahun dan 18
(12.8%) lebih daripada 11 tahun.
Ujian Hipotesis
H0 (1) : Tidak terdapat perbezaan antara jantina dengan kepuasan
kerja ketua panitia. Ujian-t Sample Bebas menunjukkan perbezaan
jantina adalah signifikan (t(139)= 2.08, p < .05) dan d = 0.36 iaitu kesan
saiz yang sederhana. Keputusan ini menunjukkan ketua panitia
lelaki mempunyai min (3.18) yang lebih tinggi berbanding dengan
min (3.07) ketua panitia wanita dengan kepuasan kerja (Jadual 1).
Jadual 1
Perbezaan Kepuasan Kerja Ketua Panitia berdasarkan Jantina
Jantina
Lelaki
Perempuan
N
63
78
Min
3.18
3.07
Sisihan Piawai
0.33
0.28
t
2.08
p
.04*
*p < .05
H0 (2): Tidak terdapat perbezaan antara tahap umur dengan

kepuasan kerja ketua panitia. Ujian ANOVA satu hala mendapati min
kepuasan kerja adalah signifikan (F (2,138) = 3.45, p < .05) dan d = .05
iaitu kesan saiz yang kecil dengan tahap umur ketua panitia. Ujian
Post Hoc (Turkey) mendapati terdapat perbezaan yang signifikan
antara ketua panitia berumur 25 hingga 35 tahun dan berumur lebih
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daripada 45 tahun (p <.05) dan antara berumur 36 hingga 45 tahun
dan berumur lebih daripada 45 tahun (p< .05). Namun demikian tidak
terdapat perbezaan yang signifikan antara ketua penitia berumur 25
hingga 35 tahun dan ketua panitia berumur 36 hingga 45 tahun (p >
.05) dengan kepuasan kerja (Jadual 2).
Jadual 2
Perbezaan Kepuasan Kerja Ketua Panitia dengan Tahap Umur Guru
Kumpulan
Antara Kumpulan
dalam kumpulan
Jumlah
Kuasa Dua
Min Kuasa
Dua
Dk
0.64
12.73
0.32
0.09
2
138
3.49
.03*
*p < .05
H0 (3): Tidak terdapat perbezaan antara pengalaman mengajar

dengan kepuasan kerja ketua panitia. Ujian ANOVA mendapati min
kepuasan kerja antara kumpulan pengalaman sebagai ketua panitia
adalah tidak signifikan (F(2, 138) = 0.63, p > .05) dan d = .01 iaitu kesan
saiz yang kecil. Ini menunjukkan tahap pengalaman kerja tidak
berbeza dengan kepuasan kerja (Jadual 3).
Jadual 3
Perbezaan Kepuasan Kerja Ketua Panitia dengan Pengalaman Kerja Guru
Kumpulan
Antara Kumpulan
dalam kumpulan
Jumlah
Kuasa Dua
0.12
13.26
Min Kuasa
Dua
0.06
0.10
Dk
2
138
0.63
.53
p > .05
H0 (4): Tidak terdapat hubungan yang signifikan antara kerja

berpasukan dalam pasukan dengan kepuasan kerja ketua panitia.
Kerja berpasukan mempunyai hubungan positif dan didapati
signifikan (r = 0.56, p < .01) dengan kepuasan kerja ketua panitia.
Kerja berpasukan mempunyai hubungan sederhana (r = 0.56) dan
menyumbang sebanyak 31% varians dengan kepuasan kerja ketua
panitia.
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H0 (5) : Tidak terdapat hubungan yang signifikan antara struktur
perwatakan kumpulan dalam pasukan dengan kepuasan kerja
ketua panitia. Struktur perwatakan kumpulan pasukan mempunyai
hubungan yang positif dan didapati signifikan (r = 0.62, p < .01)
dengan kepuasan kerja ketua panitia. Struktur perwatakan kumpulan
mempunyai hubungan sederhana (r = 0.62) dan menyumbang
sebanyak 38% varians dengan kepuasan kerja ketua panitia.
H0 (6) : Tidak terdapat hubungan yang signifikan antara struktur
perwatakan individu dengan kepuasan kerja ketua panitia. Struktur
perwatakan individu mempunyai hubungan positif dan signifikan
(r = 0.58, p< .01) dengan kepuasan kerja ketua panitia. Struktur
perwatakan individu mempunyai hubungan yang sederhana (r =
0.58) dan menyumbang sebanyak 34% varians berhubungan dengan
varians kepuasan kerja ketua panitia.
H0 (7): tidak terdapat hubungan yang signifikan antara interpersonal
dengan kepuasan kerja ketua panitia. Interpersonal mempunyai
hubungan positif dan signifikan (r = 0.50, p < .01) dengan kepuasan
kerja ketua panitia. Interpersonal mempunyai hubungan yang
sederhana (r = 0.50) dan menyumbang sebanyak 25% varians
berhubungan dengan varians kepuasan kerja ketua panitia. Secara
keseluruhannya kerja berpasukan mempunyai hubungan positif yang
signifikan (r = 0.70, p < .01) dengan kerja ketua panitia. Hubungan
kerja berpasukan mempunyai hubungan yang tinggi (r = 0.70) dan
menyumbang sebanyak 49% varians berhubung dengan kepuasan
kerja ketua panitia.
Jadual 4
Hubungan antara Pemboleh Ubah Kerja Berpasukan dengan Kepuasan Kerja
Pemboleh ubah Kerja berpasukan
Kepimpinan kerja berpasukan
Struktur perwatakan kumpulan
Struktur perwatakan individu
Hubungan interpersonal
Kerja Berpasukan
Kepuasan Kerja
0.56**
0.62**
0.58**
0.50**
0.70**
**p < .01 (ujian dua ekor)
Berdasarkan model regrasi berganda mendapati persamaan berikut

terbentuk. Kepuasan Kerja (Y) = 1.00 + 0.31 (kepimpinan kerja
berpasukan) + 0.26 (struktur perwatakan kumpulan) + 0.10 (struktur
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perwatakan individu) + 0.20 (hubungan interpersonal). Analisis
Regrasi Berganda telah mengenal pasti tiga peramal yang signifikan
terhadap kepuasan kerja iaitu kepimpinan kerja berpasukan, struktur
perwatakan kumpulan dan hubungan interpersonal di mana = .31
(t = 4.41, p < .01), = .26 (t = 2.52, p < .05),
= .20 (t = 2.11, p <
.05). Faktor-faktor ini menyumbang kepada 51% daripada jumlah
varians untuk kepuasan kerja ketua panitia (F(4, 136) = 35.25, p <
.01). Manakala struktur perwatakan individu = .10 (t = 0.82, p > .05)
adalah tidak signifikan. Di antara semua peramal, kepimpinan kerja
berpasukan mempunyai hubungan yang paling kuat, = .31 (t = 4.41,
p < .01).
Perbincangan dan Cadangan Kajian

Jantina dan Kepuasan Kerja Ketua Panitia
Hasil kajian menunjukkan bahawa wujud perbezaan antara ketua
panitia lelaki dan perempuan dengan kepuasan kerja dan dapatan
kajian ini adalah selaras dengan dapatan kajian-kajian yang lepas
(Zahavy & Somech, 2001; Soon, 2002). Hasil kajian juga mendapati
kepuasan kerja ketua panitia lelaki lebih tinggi berbanding ketua
panitia perempuan dan ini, disokong oleh dapatan daripada kajiankajian yang lepas (Cheung & Sherling, 1999; Mertler, 2002).
Umur dan Kepuasan Kerja Ketua Panitia
Dapatan kajian menunjukkan terdapat perbezaan min yang signifikan
antara umur seseorang ketua panitia dengan kepuasan kerja. Kajian
ini juga menunjukkan ketua panitia dalam kumpulan ketiga (> 45
tahun) mempunyai kepuasan kerja yang lebih tinggi berbanding
ketua panita dalam kumpulan pertama (2535 tahun) dan kumpulan
kedua (3645 tahun). Ketua panitia dalam kumpulan pertama (2535
tahun) dan ketua panitia dalam kumpulan kedua (3645 tahun) pula
tidak menunjukkan perbezaan min yang signifikan. Dapatan kajian
ini adalah konsisten dengan kajian Soon (2002) yang mendapati
umur mempunyai perbezaan yang signifikan dengan kepuasan
kerja. Hasil kajian ini juga mendapati guru yang lebih berumur
mempunyai kepuasan kerja yang lebih tinggi berbanding guru yang
lebih muda. Keputusan kajian ini adalah selaras dengan kajian lepas
yang mendapati guru yang lebih berumur menunjukkan kepuasan
kerja yang lebih tinggi berbanding dengan guru muda, ini mungkin
disebabkan oleh suasana pekerjaan yang lebih baik, ganjaran yang
baik (Bull, 2005).
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IJMS 19 (1), 175191 (2012)

Pengalaman Kerja dan Kepuasan Kerja Ketua Panitia
Hasil kajian menunjukkan tidak terdapat perbezaan min yang
signifikan antara pengalaman sebagai ketua panitia dengan kepuasan
kerja ketua panitia. Hal ini menunjukkan pengalaman sebagai
ketua panitia tidak menunjukkan kepuasan kerja yang berbeza.
Dapatan kajian ini selaras dengan kajian terdahulu yang mendapati
pengalaman kerja tidak memberikan kesan kepada kepuasan kerja
(Zahavy & Somech, 2001; Perrachione, Rosser & Petersen, 2008).
Kerja Berpasukan dengan Kepuasan Kerja Ketua Panitia
Kerja berpasukan mempunyai hubungan yang positif dan didapati
signifikan secara statistik dengan kerja ketua panitia. Hubungan kerja
berpasukan mempunyai hubungan yang tinggi iaitu 0.70 terhadap
kepuasan kerja. Dapatan kajian ini disokong oleh Pounder (1999)
yang mendapati kerja berpasukan merupakan faktor yang paling
mempengaruhi kepuasan pekerja. Hal ini menunjukkan guru-guru
yang bekerja dalam pasukan menunjukkan kepuasan kerja dalam
melaksanakan tugas mereka daripada guru-guru yang bekerja secara
individu.
Tindakan Pemimpin dengan Kepuasan Kerja Ketua Panitia
Hasil kajian menunjukkan bahawa terdapat hubungan yang signifikan
antara tindakan pemimpin dengan kepuasan kerja. Ini bermakna
ketua panitia yang mempunyai daya kepimpinan yang tinggi juga
mempunyai kepuasan kerja yang tinggi. Dapatan kajian ini adalah
selaras dengan dapatan kajian lepas untuk tindakan pemimpin oleh
Grin, Petterson dan West (2001) dalam kajian mereka mendapati
sokongan daripada ketua mempunyai hubungan yang positif dengan
kepuasan kerja berpasukan. Begitu juga dalam kajian Conley, Fauske
dan Pounder (2004) mendapati ketua boleh memberikan sokongan
yang lebih dengan memberikan pengiktirafan dalam bentuk yang
tidak formal seperti memberikan motivasi dalam tugasan guru.
Struktur Perwatakan Kumpulan dengan Kepuasan Kerja Ketua
Panitia
Hasil kajian menunjukkan bahawa terdapat hubungan yang
signifikan antara struktur perwatakan kumpulan dengan kepuasan
kerja. Hal ini bermakna ahli-ahli panitia yang mempunyai semangat
kerja berpasukan yang tinggi juga menyumbang kepada kepuasan
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IJMS 19 (1), 175191 (2012)

kerja ketua panitia yang tinggi. Dapatan untuk dimensi struktur
perwatakan pasukan ini disokong oleh kajian Ruiz Ulloa dan Adams
(2004) yang mendapati struktur perwatakan pasukan menyumbang
kepada keberkesanan sesebuah pasukan serta sikap yang positif iaitu
mempunyai kepuasan untuk bekerja dalam satu pasukan. Selain itu,
kajian ini juga disokong oleh Hee dan Park (2008) yang mendapati
kepuasan kerja berpasukan guru adalah bergantung kepada
perwatakan pasukan.
Struktur Perwatakan Individu dengan Kepuasan Kerja Ketua
Panitia
Dapatan kajian menunjukkan bahawa terdapat hubungan signifikan
antara struktur perwatakan individu dengan kepuasan kerja. Ini
bermakna ahli-ahli panitia yang memainkan peranan masingmasing akan menyumbang kepada kepuasan kerja ketua panitia
yang tinggi. Dapatan kajian untuk dimensi struktur perwatakan
individu ini adalah konsisten dengan dapatan kajian lepas Stevens
and Campion (1994) dalam kajian mereka telah menghuraikan dan
mengesahkan bahawa pengetahuan, kemahiran dan kemampuan
merupakan elemen yang penting kepada individu supaya mereka
berfungsi dengan berkesan dalam satu pasukan. Selain daripada
itu, kajian ini juga disokong oleh kajian Hee dan Park (2008) yang
mendapati kepuasan kerja berpasukan guru adalah bergantung
kepada perwatakan individu guru itu sendiri.
Hubungan Interpersonal dengan Kepuasan Kerja Ketua Panitia
Hasil dapatan menunjukkan terdapat hubungan yang signifikan
antara hubungan Interpersonal dengan kepuasan kerja. Ini bermakna
hubungan yang baik antara ahli panitia turut menyumbang kepada
kepuasan kerja ketua panitia yang tinggi. Hasil kajian untuk
dimensi hubungan interpersonal juga disokong oleh Hee dan Park
(2008) yang mendapati faktor kolaboratif dan bekerjasama antara
ahli dalam kumpulan mempunyai hubungan yang positif dengan
kepuasan kerja guru. Selain itu, kajian ini juga selaras dengan kajian
lepas yang mendapati komunikasi yang terbuka menyumbang secara
signifikan kepada kepuasan kerja ahli dalam satu-satu pasukan (Miles
& Mangold, 2002; Soon, 2002; Pineda & Lerner, 2006) serta kajian
lepas yang mendapati kerja secara kolaboratif dengan rakan setugas
merupakan faktor yang mempengaruhi kepuasan kerja (Zembylas &
Papanastasiou, 2006 ).
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IJMS 19 (1), 175191 (2012)
Implikasi Dapatan Kajian

Kajian ini memberikan implikasi kepada pihak pengurusan sekolah
supaya lebih prihatin terhadap kepuasan kerja ketua panitia supaya
mereka dapat memimpin pasukan mereka dengan lebih efektif dan
berkesan. Berdasarkan dapatan kajian, aspek kepuasan kerja ketua
panitia mempunyai hubungan dengan tindakan pemimpin, struktur
perwatakan kumpulan, struktur perwatakan individu dan hubungan
interpersonal antara ahli dalam panitia. Tindakan pemimpin dalam
pasukan merupakan peramal yang paling kuat dalam menentukan
kepuasan kerja ketua panitia. Dalam hal ini, pengetua dikatakan
dapat memainkan peranan yang utama dalam perancangan dan
penyelarasan tugas. Sebagai contoh, pengetua-pengetua dapat
berkomunikasi dengan ketua panitia secara berkesan bagi memastikan
terdapat keselarasan antara matlamat sekolah dan sasaran dalam
panitia. Selain itu, pengagihan tugas yang adil serta seimbang oleh
pengetua dan maklum balas mengenai tindakan yang telah dilakukan
merupakan faktor yang penting menyumbang kepada kepuasan
kerja ketua panitia. Hal ini bermaksud ketua panitia perlu diberikan
maklum balas supaya mereka tahu akan penerimaan tindakan yang
telah dilakukan. Ketua panitia melakukan penambahbaikan untuk
memastikan pengurusan panitia berjalan dengan lancar. Hubungan
yang harmoni dalam panitia menjamin keselesaan berkomunikasi dan
berinteraksi antara sesama ahli adalah penting dalam menentukan
suasana kerja yang kondusif. Motivasi serta galakan yang membina
di samping sikap saling menolong antara satu sama lain merupakan
ciri yang diperlukan oleh sesebuah panitia supaya dapat berfungsi
dengan baik dalam mewujudkan persekitaran kerja yang kondusif
dan menarik.
Implikasi kajian ini juga menunjukkan ahli-ahli panitia yang
mempunyai semangat kerja berpasukan yang tinggi turut
menyumbang kepada kepuasan kerja ketua panitia yang tinggi.
Struktur perwatakan pasukan ketua panitia juga menyumbang
kepada keberkesanan sesebuah panitia sekolah bersikap positif
untuk mewujudkan kepuasan kerja berpasukan. Begitu juga
dengan struktur perwatakan individu yang konsisten dari segi
pengetahuan, kemahiran dan kemampuan memberi peluang kepada
ahli panitia untuk berfungsi dengan berkesan dalam satu pasukan
panitia.
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IJMS 19 (1), 175191 (2012)
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PELABURAN LANGSUNG ASING DAN

PERKEMBANGAN PELANCONGAN:
KOINTEGRASI DAN UJIAN PENYEBAB
GRANGER DI SEPULUH DESTINASI
UTAMA PELANCONGAN
THE DEVELOPMENT TOURISM AND FOREIGN DIRECT
INVESTMENT: CO-INTEGRATION AND GRANGER CAUSALITY
TEST IN TEN MAIN TOURISM DESTINATIONS
NORLIDA HANIM MOHD SALLEH

Institut Kajian Ekosistem Marine
REDZUAN OTHMAN
TAMAT SARMIDI
Abstrak
Kebanyakan Negara Sedang Membangun menghadapi masalah kekurangan
dana dalam membangunkan negara mereka khususnya dalam sektor yang
memerlukan perbelanjaan yang besar seperti pembangunan industri
pelancongan (ARR). Salah satu sumber dana yang penting adalah daripada
Pelaburan Langsung Asing (PLA). Oleh itu kajian ini bertujuan untuk
mengenal pasti kewujudan hubungan antara PLA dan ARR di destinasi
pelancongan utama dunia, iaitu negara Perancis, Sepanyol, Amerika
Syarikat, China, Itali, United Kingdom, Jerman, Turki, Mexico dan Malaysia
bagi tempoh masa tiga puluh tahun iaitu daripada tahun 1978 hingga 2008.
Untuk mencapai tujuan kajian ini, kaedah kointegrasi dan Ujian Penyebab
Granger dalam kerangka pendekatan ARDL digunakan. Pemilihan kaedah
ini disebabkan oleh keistimewaan kaedah itu sendiri di mana ia membenarkan
data siri masa yang pendek digunakan di samping boleh diaplikasikan pada
siri masa yang berbeza kepegunannya, iaitu I(0) dan I(I). Hasil kajian
mendapati wujud hubungan jangka panjang atau kointegrasi antara PLA dan
ARR di kesemua negara dikaji. Dalam jangka pendek ujian sebab-penyebab
mendapati ARR adalah signifikan mempengaruhi PLA bagi negara Perancis,
Mexico, United Kingdom dan Malaysia. Sementara di Perancis, Mexico
dan United Kingdom sahaja didapati PLA adalah signifikan mempengaruhi
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IJMS 19 (1), 193210 (2012)

ARR dalam jangka pendek. Bagi negara lain iaitu Jerman, Itali, Sepanyol,
Turki, Amerika Syarikat dan China didapati kedua-dua pemboleh ubah PLA
dan ARR tidak mempunyai sebarang hubungan dalam jangka pendek. Hasil
kerja ini dapat dijadikan panduan kepada pembuat dasar dalam merangsang
pembangunan pelancongan.
Kata kunci: Pelaburan langsung asing, perkembangan pelancongan,
kointegrasi, ujian penyebab granger.
Abstract
Purpose Most developing countries are lacking in funds for the development
of their countries particularly in sectors that require a huge amount of fund
such as the development of the tourism industry (ARR). One of the major
sources of fund is from the Foreign Direct Investment (PLA). Thus, the
objective of this study is to identify the existence of the relationships between
FDI and ARR for 10 major world tourist destinations, namely France, Spain,
the United States of America, China, Italy, the United Kingdom, Germany,
Turkey, Mexico and Malaysia for the period of 30 years from 1978 to 2008.
Design/Methodology/Approach Co-integration and Granger Causality
Test method within the ARDL framework was adopted in this study since
this method allows shorter time series data to be used and at the same time
it allows the application time series data with dierent levels of stationarity
[I(0) and I(I)].
Findings Research findings showed the existence of the long-run
relationships or there was cointegration between FDI and ARR in all the
countries. In the short-run the causality test was applied and found ARR
was significant in influencing FDI in France, Mexico, the United Kingdom
and Malaysia. It also found that only in France, Mexico and the United
Kingdom, FDI was significant in influencing ARR in the short-run. For
other countries, namely Germany, Italy, Spain, Turkey, the USA and China
both variables-PLA and ARR-do not have any relationships in the short-run.
Originality/Value Findings from this research can be used as guidance to
policy makers and other stakeholders in stimulating the development of the
tourism industry.
Keywords: Co-integration, foreign direct investment, granger causality
test, tourism development.
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Pengenalan
Pelancongan adalah satu sektor yang berkembang pesat di dunia.
Pelancongan antarabangsa merupakan eksport kepada ekonomi
kerana membawa masuk tukaran mata wang asing. Bagi negara maju
dan negara membangun, pelancongan antarabangsa merupakan
penyumbang kepada sumber tukaran asing, penjana pendapatan
dan pekerjaan. Oleh itu, untuk meraih manfaat dan faedah
daripada industri ini, banyak negara terutamanya daripada Negara
Sedang Membangun memperkenalkan pelbagai dasar dan strategi
pembangunan pelancongan.
Kesan perancangan ini telah meningkatkan ketibaan pelancong yang
sangat signifikan di seluruh dunia. Contohnya, pada 1950 hanya
25.3 juta ketibaan pelancong dicatatkan di seluruh dunia. Jumlah
ini kemudiannya meningkat kepada 922 juta pada 2008. Begitu
juga hasil yang disumbangkan oleh pelancongan turut meningkat
daripada hanya US$2.1 bilion pada tahun 1950 kepada US$944 bilion
pada tahun 2008 yang menjadikan pelancongan sebagai industri
pengeksport terbesar di dunia. Hal ini bermakna, dalam tahun 2008
setiap hari hampir 2.5 juta orang membuat perjalanan antarabangsa
dan membelanjakan sejumlah lebih daripada US$2.6 bilion. Jumlah
ketibaan pelancong antarabangsa ini dijangka akan terus meningkat
kepada 1,561 juta pada tahun 2020 (WTO, pelbagai tahun).
Penglibatan kebanyakan negara mengembangkan industri
pelancongan masing-masing juga adalah didorong oleh peranan
dan sumbangan industri pelancongan kepada pembangunan
sosioekonomi negara tuan rumah atau negara penerima begitu besar
dan penting. Mengikut World Travel and Tourism Council pada 2006
(WTTC, 2006), industri lawatan dan pengembaraan antarabangsa
menyumbang lebih kurang 3.6 peratus atau US$1,754.5 billion
Pendapatan Kasar Dalam Negara (KDNK) dan dalam tempoh 10 tahun
akan datang nilai ini diramalkan akan meningkat kepada US$2,969.4
billion. Industri pelancongan juga merupakan penyumbang utama
kepada pendapatan eksport negara. Pada tahun 2006, dianggarkan
industri ini menyumbangkan 11.8 peratus daripada jumlah eksport
dunia atau kira-kira US$1,646.6 billion. Menjelang tahun 2016, angka
ini dijangka meningkat kepada US$3,468.4 bilion atau 10.9 peratus
daripada jumlah eksport dunia (WTO, 2007).
Selain dasar dan strategi pembangunan pelancongan yang
dibincangkan di atas, pelaburan langsung asing (PLA) juga dijangka
menjadi faktor penting kepada pembangunan pelancongan. UNCTAD
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(2007) menyatakan PLA, terutamanya daripada negara membangun
(NM), dapat membantu pembangunan infrastruktur industri
pelancongan seperti hotel, restoran dan kawasan rekreasi di negara
sedang membangun (NSM). Pergantungan NSM kepada NM tidak
dapat dinafikan kerana NSM masih berhadapan dengan masalah
kekurangan sumber dana terutamanya untuk membiayai projekprojek pembangunan ekonomi berimpak tinggi yang memerlukan
modal pembangunan yang besar seperti industri pelancongan.
Persoalan yang ingin dilihat di sini ialah apakah kemasukan PLA di
beberapa negara yang menjadi destinasi pelancong utama dunia ini
sebahagian besarnya digunakan untuk pembangunan pelancongan
dan mempengaruhi perkembangannya atau untuk projek
pembangunan yang lain.
Bukti kajian empirikal masih belum mencukupi dan muktamad untuk
menjelaskan sama ada PLA sememangnya mempengaruhi/penyebab
perkembangan industri pelancongan atau sebaliknya. Malah, hasil
kajian yang sedia ada memberikan dapatan kajian yang pelbagai.
Sehingga kini, kajian yang menganalisis hubungan penyebab antara
PLA dan perkembangan pelancongan masih terhad. Namun, kajian
lepas yang telah dilakukan membuktikan wujudnya hubungan
antara PLA dengan pertumbuhan ekonomi serta beberapa pemboleh
ubah lain seperti diringkaskan dalam Jadual 1 di bawah.
Jadual 1
Senarai Kajian dan Hasil Empirikal
Penyelidik
Hasil Empirikal
Mohd Azlan et al., (2003)
Hubungan antara PLA dan pertumbuhan

ekonomi antara negara maju dan negara
sedang membangun. Hasil kajian berbeza
antara negara.
Borenstztein et al., (1998)
PLA membenarkan pemindahan teknologi

dan didapati telah meningkatkan pertumbuhan
ekonomi.
Dunning dan McQueen

(1981), Contractor dan
Kundu (1995), Kundu dan
Contractoran, (1999)
Kadar pertumbuhan ekonomi, terutama

perniagaan berasaskan pelancongan menjadi
penentu utama kemasukan PLA .
Kulendran dan Wilson,

(2000)
Wujud hubungan antara pelancongan dan

perdagangan antarabangsa.
(sambungan)
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Penyelidik
Hasil Empirikal
Corte-Jimenez dan Pulina,

(2006)
Industri
pelancongan
dan
eksport
mempengaruhi pertumbuhan ekonomi di
Sepanyol dan Itali.
Othman et al., (2007)
Pembangunan
industri
pelancongan
adalah penyebab sehala pertumbuhan
ekonomi. Hasil kajian mendapati 10
peratus peningkatan ketibaan pelancong
meningkatkan 1.9 peratus GDP Malaysia.
Othman dan Salleh (2010a)
Kajian
mendapati
wujud
hubungan
sehala antara pertumbuhan pelancongan
dan pertumbuhan ekonomi di Negara
ASEAN,
dengan
hubungan
sehala
daripada pertumbuhan ekonomi kepada
perkembangan
industri
pelancongan
di Thailand dan Indonesia. Hubungan
sebaliknya bagi Malaysia dan Singapura.
Sarmidi dan Salleh (2009)
Wujud hubungan antara ketibaan pelancong,

perdagangan dan pertumbuhan ekonomi
antara Malaysia dan empat Negara ASEAN
yang dikaji iaitu Indonesia, Singapura,
Thailand dan Brunei.
Tang et al., (2007)
Wujud hubungan sehala antara PLA sebagai

penentu pertumbuhan pelancongan di China.
Othman dan Salleh (2010b)
Tiada arah aliran yang khusus antara

pertumbuhan ekonomi dan pertumbuhan
pelancongan di negara maju dan negara yang
baru membangunkan industri pelancongan.
Sumber. Diringkaskan daripada kajian lepas.
Ramai pengkaji menjalankan kajian hubung kait antara PLA

dan pelancongan (ARR) seperti, Sanford dan Dong (2000) yang
menggunakan model TOBIT mendapati wujud hubungan positif
antara pelancongan dan PLA dalam beberapa industri baharu di
Amerika Syarikat. Dengan menggunakan kerangka kerja VAR, Tang
et al. (2007) mendapati wujud hubungan sehala antara PLA dengan
pelancongan di negara China dan India seperti dilaporkan oleh
Saroja (2009) dan Selvanathan et al. (2009). Untuk kes di India,
jelas PLA diperlukan untuk membangunkan infrastruktur seperti
lapangan terbang, hotel dan pelbagai kelengkapan teknologi moden
yang merupakan pemangkin kepada perkembangan industri
pelancongan.
197
IJMS 19 (1), 193210 (2012)

Oleh kerana dapatan kajian yang pelbagai tentang arah hubungan
antara pemboleh ubah PLA dan perkembangan pelancongan dan
bilangan kajian yang berkaitan masih lagi terbatas menyebabkan
wujudnya keperluan kajian oleh pengkaji untuk melihat arah
hubungan antara PLA dan ARR di negara destinasi pelancongan
utama dunia ini. Dalam konteks ini, PLA merujuk kepada aliran
masuk pelaburan asing ke dalam negara berkenaan. Manakala ARR
pula merujuk kepada ketibaan pelancong antarabangsa ke negara
yang dikaji.
Objektif kajian ini untuk mengenal pasti sama ada wujud hubungan
jangka panjang antara PLA dan perkembangan industri pelancongan.
Sekiranya wujud hubungan antara PLA dan perkembangan
pelancongan, PLA adalah penyebab kepada perkembangan
pelancongan atau perkembangan pelancongan sebagai penyebab
kepada PLA. Maklumat sebegini penting khususnya kepada
pembuat dasar dalam usaha merangsang lonjakan pembangunan
yang berterusan terutamanya dalam sektor pelancongan yang
merupakan antara sektor penggerak utama pendapatan tukaran
asing kebanyakan negara. Hal ini juga merupakan antara signifikan
kajian ini dilakukan.
Namun, jika dilihat dari segi arah aliran kedua-dua pemboleh ubah
iaitu perkembangan industri pelancongan yang diproksikan oleh
ketibaan pelancong dan PLA seperti ditunjukkan dalam Rajah 1
jelas memperlihatkan arah aliran yang beriringan. Hal ini seolaholah menunjukkan kedua-dua pemboleh ubah mempunyai kaitan
atau saling mempengaruhi. Walau bagaimanapun, membuat
kesimpulan dengan berpandukan gambar rajah semata-mata adalah
kurang tepat.
Untuk tujuan penulisan ini, perbincangan dibahagikan kepada dua
subtopik utama iaitu perbincangan metodologi kajian dan keputusan
empirikal serta kesimpulan dan implikasi dasar. Bahagian metodologi
membincangkan semua prosedur yang perlu dilakukan dalam kajian
ini.
198
IJMS 19 (1), 193210 (2012)
ARR
Legend
PLA
Rajah 1. Graf Pelaburan Langsung Asing (PLA) dan Perkembangan

Pelancongan (ARR) di 10 destinasi pelancongan utama dunia.
Metodologi Kajian dan Keputusan Empirikal

Kajian ini memberi fokus kepada analisis empirikal dalam
menunjukkan hubungan antara ARR dan PLA. Sejumlah sepuluh
199
IJMS 19 (1), 193210 (2012)

negara destinasi pelancongan utama antarabangsa telah dipilih.
Pemilihan negara adalah berdasarkan pemeringkatan kedudukan
negara sebagai destinasi utama pelancongan dan kesediaan data.
Data siri masa diperoleh daripada World Tourism Organization (WTO),
World Development Indicator, The United Nations Statistics Division dan
The World Bank untuk tempoh 1978 hingga 2008.
Berasaskan kepada kajian lepas, kaedah yang paling sesuai dan terbaik
untuk menentukan kewujudan hubungan antara pemboleh ubah
analisis penyebab antara pemboleh ubah ini adalah melalui kaedah
kointegrasi dan ujian penyebab Granger. Kajian ini mengguna pakai
kaedah kointegrasi dan ujian penyebab Granger dalam kerangka
ARDL. Kelebihan kedua-dua kaedah ini membenarkan data siri
masa yang pendek digunakan di samping ia boleh diaplikasikan
pada siri masa yang berbeza kepegunannya iaitu I(0) dan I(I). Untuk
tujuan tersebut, tiga ujian/langkah perlu dilakukan dalam kajian
ini. Langkah pertama yang perlu dipenuhi dalam mengaplikasikan
kaedah kointegrasi adalah data yang merupakan proksi kepada
setiap pemboleh ubah yang digunakan iaitu PLA dan ARR mestilah
bersifat pegun. Untuk membuktikan data itu pegun atau sebaliknya,
ujian kepegunan yang merujuk kepada Ujian Punca Unit (unit root
test) perlu dilakukan terlebih dahulu. Langkah kedua disusuli dengan
ujian kointegrasi bagi pemboleh ubah ARR dan FDI di kesemua
negara yang dipilih. Kajian dilakukan dengan menggunakan kaedah
kointegrasi dalam pendekatan ARDL bagi pembuktian tersebut.
Ketiga, ujian penyebab Granger dilakukan bagi menguji sama ada
terdapat hubungan satu hala ataupun dua hala antara kedua-dua
pemboleh ubah ini. Kedua-dua pemboleh ubah ini dalam bentuk
logaritma.
Ujian Punca Unit
Dalam analisis ekonomi, ujian punca unit dilakukan bagi mengenal
pasti kepegunan data siri masa yang digunakan. Terdapat banyak
kaedah untuk menguji kepegunan sesuatu siri masa antaranya
Augmented Dickey Fuller (ADF, 1979) dan Phillips Perron (PP, 1988).
Kedua-dua ujian ini menggunakan kewujudan punca unit sebagai
hipotesis sifar. Ujian PP berbeza dengan ADF terutamanya dalam
caranya menguruskan korelasi bersiri dalam kesilapan (error). Kajian
ini menggunakan ujian Augmented Dickey Fuller yang menggunakan
satu parameter autoregresi untuk menghampiri kesilapan-kesilapan
struktur dalam ujian regresi.
200
IJMS 19 (1), 193210 (2012)

Sesuatu data siri masa dikatakan pegun apabila min dan varians
adalah konstan melalui masa manakala siri autokovarians tidak
bergantung pada masa. Sebaliknya, apabila data siri masa tidak
pegun1, min dan varians bergantung kepada masa. Jika data yang
tidak pegun digunakan dalam analisis ini, korelasi palsu akan
wujud antara pemboleh ubah dan keputusan yang tidak tetap akan
dihasilkan. Ujian ADF berasaskan regresi biasa adalah seperti berikut:
Ujian ADF: 'Yt
D G t EYt 1 J i 1 'Yt 1 ut
p
Dengan pemboleh ubah Yt menunjukkan ujian punca unit bagi Yt

yang menggunakan logaritma bagi semua pemboleh ubah model
(ARR dan PLA) pada masa t. Manakala pemboleh ubah Yt-1
pula menunjukkan lag pembezaan pertama. merupakan simbol
pembezaan. u adalah ralat penganggaran dan , , , dan v adalah
t
parameter yang dianggarkan.
Keputusan ujian ADF adalah seperti ditunjukkan di Jadual 2 bagi
10 buah negara utama yang dipilih. Hasil kajian menunjukkan H0
ditolak pada aras keertian 5 peratus selepas pembezaan pertama
bagi semua pemboleh ubah yang digunakan iaitu PLA dan ARR di
kesemua negara yang dipilih. Hal ini bermakna kesemua pemboleh
ubah di semua negara yang dikaji mempunyai unit root dan adalah
pegun/berintegrasi aras pertama dan dinotasikan sebagai I(1).
Jadual 2
Keputusan ADF bagi Ujian Punca Unit ke atas Peringkat Tingkat (level)
dan Pembezaan Pertama
Peringkat tingkat
Negara
Perancis
Sepanyol
Amerika Syarikat
China
Pemboleh
ubah
Intersep
Intersep &
tren
-2.50 (0)
Peringkat pertama
Intersep &
tren
Intersep
ln PLA
-0.29 (0)
-5.57 (0)*
-5.50 (0)*
ln ARR
-1.88 (0)
-0.81 (0)
-4.35 (0)*
-4.63 (0)*
ln PLA
-2.22 (7)
-4.16 (2)*
-3.56 (6)*
-4.18 (6)*
ln ARR
-2.22 (0)
-2.17 (0)
-4.47 (0)*
-4.39 (0)*
ln PLA
-1.66 (0)
-3.26 (2)
-4.93 (0)*
-4.83 (0)*
ln ARR
-1.14 (2)
-1.26 (2)
-5.19 (0)*
-5.19 (0)*
ln PLA
-1.94 (2)
-13.04 (1)*
-13.27 (1)*
-11.88 (1)*
ln ARR
-2.19 (0)
-2.19 (0)
-5.47 (0)*
-5.35 (0)*
(sambungan)
201
IJMS 19 (1), 193210 (2012)

Peringkat tingkat
Negara
Itali
United Kingdom
Jerman
Turki
Mexico
Malaysia
Pemboleh
ubah
ln PLA
ln ARR
ln PLA
ln ARR
ln PLA
ln ARR
ln PLA
ln ARR
ln PLA
ln ARR
ln PLA
ln ARR
Intersep
-1.31 (1)
-0.66 (0)
-1.71 (1)
-0.32 (0)
-1.61 (0)
-2.18 (0)
-0.68 (0)
-0.05 (0)
-0.97 (2)
-1.39 (0)
-1.84 (0)
-0.36 (0)
Intersep &
tren
-3.61 (0)*
-1.81 (0)
-3.95 (7)*
-2.74 (1)
-4.04 (0)*
-2.22 (0)
-3.14 (0)
-2.54 (0)
-3.46 (0)
-1.29 (0)
-2.56 (0)
-2.87 (0)
Peringkat pertama
Intersep
-8.39 (0)*
-5.25 (0)*
-5.30 (7)*
-3.61 (0)*
-7.10 (0)*
-5.93 (0)*
-8.13 (0)*
-5.79 (0)*
-6.64 (1)*
-5.26 (0)*
-6.93 (0)*
-5.44 (0)*
Intersep &
tren
-8.27 (0)*
-5.21 (0)*
-5.08 (7)*
-3.65 (2)*
-6.97 (0)*
-6.00 (0)*
-8.15 (0)*
-5.66 (0)*
-6.52 (1)*
-5.30 (0)*
-6.80 (0)*
-5.35 (0)*
Nota. ln GDP ialah logaritma untuk kadar pertumbuhan Keluaran Dalam Negara
Kasar (GDP), ln PLA ialah logaritma untuk Pelaburan Langsung Asing (PLA) dan
ln ARR ialah logaritma untuk perkembangan industri pelancongan yang diproksi
daripada jumlah ketibaan pelancong. Nilai kurungan adalah kepanjangan lat yang
diguna pakai dalam ujian ADF (seperti yang ditentukan daripada set SIC terhadap
maksimum tujuh) untuk penolakan korelasi siri di dalam residuals. Ujian punca unit
ADF dilakukan dengan intersep serta intersep dan tren.
* signifikan pada aras keertian 5% (atau pada aras keyakinan 95).
Pemboleh ubah PLA untuk negara China, Itali, Sepanyol dan United
Kingdom juga didapati pegun pada peringkat tingkat dan dinotasikan
sebagai I(0) bila mana menggunakan model dengan intersep dan tren.
Rumusannya, pemboleh ubah ARR dan PLA dalam kajian adalah
pegun pada I(0) an I(1).
Kointegrasi
Johansen (1988, 1991), dan Johansen dan Juselious (1990)2 telah
mempelopori usaha memahami gelagat atau hubungan jangka
panjang antara pemboleh ubah ekonomi dengan memperkenalkan
kaedah kointegrasi3. Prasyarat penting yang perlu dipenuhi dalam
mengaplikasikan kaedah kointegrasi Johansen ini data mestilah
bersifat pegun pada aras (order) yang sama. Walau bagaimanapun,
dalam kajian ini bagi beberapa negara didapati data pegun pada aras
yang berbeza iaitu pada peringkat tingkat dan selepas pembezaan
pertama. Hal ini bermakna data-data kajian ini pegun pada I(0)
dan I(1), masing-masing merujuk kepada peringkat tingkat dan
selepas pembezaan pertama yang mana tidak membenarkan kaedah
202
IJMS 19 (1), 193210 (2012)

kointegrasi Johansen diaplikasikan. Walau bagaimanapun, kaedah
kointegrasi yang dipelopori oleh Pesaran dan Shin (1995, 1999);
Pesaran et al. (1996); Pesaran et al. (1998); dan Pesaran et al. (2001),
yang merujuk kepada pendekatan kointegrasi dalam kerangka
Autoregressive Distributed Lag (ARDL bound test) boleh digunakan.
Pendekatan ARDL bound test dipilih kerana ia boleh digunakan untuk
sampel data yang kecil, boleh menganggarkan hubungan jangka
panjang dan jangka pendek secara serentak dan membenarkan ujian
kewujudan hubungan antara pemboleh ubah bagi data yang pegun
pada peringkat yang berbeza iaitu I(0) dan I(1) (Salleh et al., 2007,
2008). ARDL akan digunakan dengan bantuan pakej komputer
Microfit 4.0. Persamaan penganggaran model jangka panjang
dan ARDL jangka panjang dan pendek adalah seperti Persamaan (1)
dan (2).
Engel dan Granger (1986) juga menyatakan sekiranya data
berkointegrasi dalam jangka panjang maka sebarang gangguan
kepada ketidakseimbangan adalah berbentuk sementara dan dapat
ditunjukkan oleh Model Error Correction (ECM) seperti Persamaan 3
di bawah.
LARR
LARR
LARRt
1 E1 LFDI t H t
1
1
i 1
i 1
(1)
n
E1i 'LARRt i E 2i LFDI t 1 D 2 LARRt 1 D 3 LFDI t 1 H t
(2)
i 1
E1i 'LARRt i E 2i LFDI t 1 OECTt 1 H t
(3)
i 1
Di mana ialah simbol pembezaan, t pula ialah ralat/residual (white

noise) serta dan adalah koefisien pemboleh ubah yang perlu
dianggarkan. ARRt dan PLAt merujuk kepada perkembangan industri
pelancong dan pelaburan langsung asing daripada negara yang
dipilih. Bagi mengenal pasti kewujudan hubungan jangka panjang
antara pemboleh ubah ARR dan PLA, ujian bound test dilakukan
(Pesaran et al., 2001). Ujian bound test adalah berdasarkan ujian F or
Wald-statistic. Ujian F adalah untuk menguji kedua-dua hipotesis di
bawah iaitu:
(HO: 2 = 3 = 0), Tiada kointegrasi antara pemboleh ubah
(4)
(Ha : 2 3 0), Wujud kointegrasi antara pemboleh ubah
(5)
203
IJMS 19 (1), 193210 (2012)

Persamaan ujian kointegrasi ini juga boleh ditulis seperti berikut:
FLARR (LARR| LFDI).
Oleh kerana ujian F tidak mempunyai agihan standard (non-standard
distribution), dua nilai kritikal diberikan iaitu nilai kritikal bawah dan
atas (lower critical bound [LCB] dan upper critical bound [UCB]) (Pesaran
et al., 2001). Nilai LCB mengandaikan semua pemboleh ubah adalah
I(0) yang bermakna tidak wujud kointegrasi antara pemboleh ubah,
sementara nilai UCB mengandaikan semua pemboleh ubah adalah
I(1) yang bermakna wujud kointegrasi antara pemboleh ubah. Jika
nilai F yang dikira melebihi UCB, maka hipotesis H0 akan ditolak. Oleh
itu, wujud kointegrasi antara pemboleh ubah. Keadaan sebaliknya
berlaku kiranya nilai F yang dikira adalah kecil daripada nilai LCB.
Ini membawa maksud hipotesis H0 gagal ditolak. Sekiranya nilai F
yang dikira adalah antara LCB dan UCB, ini menunjukkan keputusan
tidak dapat dipastikan.
Berdasarkan keputusan ujian kointegrasi pendekatan bound test,
kesemua negara yang dipilih menunjukkan wujud kointegrasi antara
pemboleh ubah, dengan nilai F didapati melebihi nilai kritikal UCB,
rujuk Jadual 3. Maklumat daripada Jadual menunjukkan wujud
hubungan jangka panjang/kointegrasi antara ARR dan FDI untuk
semua negara yang dikaji.
Jadual 3
Keputusan Ujian Kointegasi Pendekatan Bound Test
Negara
Perancis
Jerman
Itali
Mexico
Sepanyol
Turkey
United Kingdom
Amerika Syarikat
China
Malaysia
Nota. Nilai UCB pada 5% = 5.473, 1% = 7.873
Nilai LCB pada 5% = 4.267, 1% = 6.183
* signifikan pada 5% darjah keertian.
** signifikan pada 1% darjah keertian.
204
F-Statistik
265.9487**
25.00501**
37.37782**
36.11438**
11.13784**
165.9423**
174.9683**
78.75745**
6.001093*
197.1848**
IJMS 19 (1), 193210 (2012)

Ujian Sebab-Penyebab
Engle dan Granger (1987), dan Granger (1988) menyatakan sekiranya
terdapat dua pemboleh ubah data siri masa yang berkointegrasi
atau wujud hubungan jangka panjang, maka sekurang-kurangnya
terdapat satu hubungan penyebab antara kedua-dua pemboleh
ubah. Oleh kerana ujian kointegrasi dalam kajian ini memperakukan
kewujudan hubungan jangka panjang, maka ujian hubungan sebabpenyebab perlu dilakukan.
Hubungan sebab-penyebab ini penting bagi pengujian hipotesis sama
ada perkembangan industri pelancongan adalah penyebab kepada
kemasukan PLA (tourism expansion led-FDI) atau sebaliknya, iaitu
PLA sebagai penyebab perkembangan industri pelancongan (FDI-led
tourism expansion). Bagi menguji teori endoginity, rujuk hipotesis di
persamaan (6) dan (7). Hubungan penyebab antara perkembangan
industri pelancongan dan PLA dilakukan dalam model ARDL seperti
persamaan (3) dan (8).
H0: tiada hubungan penyebab Granger antara
pemboleh ubah yang dikaji
(6)
H1: ada hubungan penyebab Granger antara

pemboleh ubah yang dikaji
(7)
LFDI t
1
i 1
E1i 'LARRt i E 2i LFDI t 1 OECTt 1 H t
(8)
i 1
Jika hipotesis nol tidak ditolak bermaksud tiada hubungan penyebab

Granger iaitu hubungan jangka pendek bagi siri yang dikaji. Tetapi
jika hipotesis nol ditolak, maka terdapat hubungan penyebab/
hubungan jangka pendek antara ARR dan PLA atau PLA dan ARR.
Analisis daripada ujian sebab-penyebab mendapati, dengan
menjadikan PLA sebagai pemboleh ubah bersandar didapati ARR
adalah signifikan mempengaruhi PLA bagi negara Perancis, Mexico,
United Kingdom dan Malaysia. Sementara di Perancis, Mexico dan
United Kingdom sahaja didapati PLA signifikan mempengaruhi ARR
dalam jangka pendek. Rujuk Jadual 4. Bagi negara lain iaitu Jerman,
Itali, Sepanyol, Turki, Amerika Syarikat dan China didapati keduadua pemboleh ubah tidak mempunyai sebarang hubungan dalam
jangka pendek.
205
IJMS 19 (1), 193210 (2012)

Jadual 4
Keputusan pendekatan ARDL pada model ECM
Negara
Perancis
Jerman
Itali
Mexico
Sepanyol
Turkey
D LPLA
D LARR
0.0039***
(2.8871)
D Konstant
ECT
F-Statistik
-0.0469*
(-2.0095)
-0.3198**
(-2.2473)
6.8726***
61.5697***
(2.8871)
0.8616**
(2.0877)
-55.2719
(-1.0111)
-0.1808*
(-1.9021)
-1.0000
(none)
2.3340
-0.8039
(-0.2611)
3.0481*
(1.8859)
87.5526***
(4.0198)
4.3149
0.5745
(0.5901)
-71.0288
-0.0314
(-0.5509)
-0.2536*
(1.1535)
(-1.1072)
(-2.0291)
-15.7251*
(-1.8483)
1.3471*
(1.7709)
45.3485
(1.2362)
-0.0743
(-1.6003)
-0.2520**
(-2.5631)
-9.8920
2.9372
(1.3786)
3.5734*
-0.1490
(-1.3687)
-0.5332***
(-0.5350)
(1.9879)
(-3.4864)
-0.9500
0.2383
(0.5014)
37.7697**
-0.0041
(-0.1387)
-1.2695***
(-10.225)
(2.4554)
(-6.7387)
-0.0003
(-0.2611)
-0.0076
(-0.4031)
-0.0071*
(-1.8483)
0.0013
(0.7590)
-0.0041
(-0.7085)
8.0038***
19.8836***
0.2951
2.5983*
2.7621*
14.0251***
2.7199*
6.3679***
0.2524
22.7392***
United
0.0024*
0.4187
-0.0249
Kingdom
(1.7179)
42.7161*
(1.7419)
(0.7251)
-954033
(-1.2526)
(-0.7184)
-0.5221**
(-2.593)
-23.6362
1.0328
(1.4097)
43.9052
-0.0552
(-1.3131)
-1.0000
(-1.5827)
(0.6374)
(none)
4.2037**
(2.6552)
-0.2420**
(-2.5877)
5.3661**
-6.7597
(-0.2963)
-0.3421*
(-1.9545)
4.5948**
0.0978
(0.0869)
-0.0020
(-0.0291)
73.9071**
(2.4700)
-0.4881***
(-3.1799)
Amerika
Syarikat
China
-0.0032
(-1.5837)
0.0233
(1.5929)
3.8180
(1.5929)
Malaysia
0.0015
(0.2256)
-4.409**
(-2.4048)
1.5711
16.0616***
2.0778
18.6623***
0.966
5.0711**
***, **, * signifikan pada aras keertian 1%, 5% dan 10% (atau pada aras keyakinan 99%,
95% dan 90%) iaitu mewakili hipotesis nol pada paras 1%, 5% dan 10%.
206
IJMS 19 (1), 193210 (2012)

Kesimpulan dan Implikasi Dasar
Kajian empirikal ini bertujuan mengkaji hubungan sebab-penyebab
antara pemboleh ubah perkembangan industri pelancongan (ARR)
yang diproksikan oleh data ketibaan pelancongan dengan pelaburan
langsung asing (PLA) di sepuluh buah destinasi utama pelancong
antarabangsa iaitu Perancis, Jerman, Itali, Mexico, Sepanyol, Turki,
United Kingdom, Amerika Syarikat, China dan Malaysia.
Untuk tujuan tersebut, analisis kointegrasi dan kajian penyebab
Granger dalam kerangka ARDL digunakan. Keputusan kajian
mendapati wujud hubungan antara pemboleh ubah yang dikaji.
ARR didapati lebih signifikan berbanding FDI dalam mempengaruhi
pemboleh ubah bersandar dalam jangka panjang.
Dalam jangka pendek pula, didapati hanya di negara Perancis, Mexico
dan United Kingom sahaja menunjukkan hubungan dua hala antara
pemboleh ubah PLA dan ARR. Bagi Malaysia, wujud hubungan satu
hala dengan ARR adalah penyebab kepada PLA. Sementara bagi
Jerman, Itali, Sepanyol, Turki, Amerika Syarikat dan China tiada
sebarang hubungan sebab-penyebab ditunjukkan oleh kedua-dua
pemboleh ubah dalam jangka pendek.
Kesimpulannya, kajian mendapati ARR lebih bersifat penyebab atau
penentu kepada PLA. Hal ini bermakna untuk mengembangkan
ekonomi Malaysia, sektor pelancongan perlu dirangsang untuk
menambah bilangan ketibaan pelancong. Ketibaan pelancong yang
lestari dalam industri pelancongan Malaysia akan menyerlahkan
lagi prospek industri ini. Akhirnya, didapati ia akan menggalakkan
kemasukan pelabur asing (PLA) yang turut serta dalam pembangunan
industri pelancongan melalui pembinaan hotel dan industri sokongan
perkhidmatan pelancongan.
Penghargaan
Penulis merakamkan penghargaan kepada Fakulti Ekonomi dan
Pengurusan, UKM, yang membiayai penyelidikam ini. No. Geran
Penyelidikan: EP-017-2009.
Nota Akhir
1.
Menurut Nelson dan Plosser (1982), kebanyakan pemboleh

ubah ekonomi termasuk pemboleh ubah kewangan boleh
207
IJMS 19 (1), 193210 (2012)
2.
3.
dikategorikan sebagai tidak pegun dan hanya mencapai

kepegunan pada tahap pembezaan pertama atau yang lebih
tinggi.
Cheung dan Ng (1998) menyatakan prosedur Johansen adalah
lebih efisien berbanding two-step approach oleh Engle dan
Granger (1987). Sementara Gonzalo (1994) pula menyatakan
prosedur Johansen memiliki finite-sample properties.
Kointegrasi merujuk kepada kemungkinan yang pemboleh
ubah tidak pegun mungkin ada kombinasi linear yang pegun
(Tan, 2007). Oleh yang demikian, analisis regresi itu bukan
palsu.
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NOTES TO CONTRIBUTORS
MANUSCRIPTS
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machines. Authors should identify the software in the cover letter
when submitting manuscripts.
Since manuscripts are reviewed anonymously, the authors name
and aliation should be supplied only on a cover sheet and
authors should avoid any identifying text references. The title of the
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page. Manuscripts will be reviewed by a panel of referees. Comments
will be made available to contributors without disclosing the referees
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COVER LETTER
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the material has not been published, and not under consideration for
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ABSTRACT
The abstract should be brief, self-contained and explicit, and should
not exceed 200 words. Contributor who submits a manuscript in
Bahasa Melayu is required to submit an extended abstract in English
not exceeding 300 words.
REFERENCES
References should be carefully checked. The references are to be cited
in the text in the author-date format (APA style e.g. Armstrong &
Overton, 1977; Salma & Mohd. Makzan,1996). A reference list only
of works cited, should be provided at the end of the text arranged in
alphabetical order. Examples of the format for journals and books are
as follows:
Armstrong, J.S., & Overton, T.S. (1977). Estimating non-response bias
in mail surveys. Journal of Marketing Research, 14, 396-402.
Salma Ishak., & Mohd. Makzan Musa. (1996). Attitudes of police
personnel towards their job. ANALISIS, 4 (1), 13-31.
Kimberly, J. R., Norling, F., & Weiss, J. A. (1983). Pondering the

performance puzzle. In R. H., Hall & R. E., Quinn (Eds.),
Organizational theory and public policy (249-264). Beverly
Hills: Sage.
Van Horne, J. C. (1992). Financial management and policy. Englewood
Clis, New Jersey: Prentice Hall.
END NOTES
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ISSN 2232-1608

Vol. 19, No. 1 June, 2012

Masudul Alam Choudhury &

The Eects of Interest Rates Volatility on

Karen Tan, Mohamed Hisham

Social Capital and Educational Attainment

Roslan Abdul Hakim, Russayani

Malaysia Household Wealth Distribution:

Muhammed Abdul Khalid

Productivity Improvement in the

Noorasiah Sulaiman, Zakariah

Eects of Susceptibility to Interpersonal

Syadiyah Abdul Shukor

Predicting Work-Family and Family-Work

Zaiton Hassan & Hana Hamidi

Genuine Savings for Malaysia: What

Jamal Othman, Roby Falatehan

Hubungan antara Kerja Berpasukan

Arsaythamby Veloo & Kiew

Norlida Hanim Mohd Salleh,

LIST OF CONTRIBUTORS/SENARAI PENYUMBANG

Masudul Alam Choudhury

Sofyan Syafri Harahap

Mohamed Hisham Yahya

Bani Arin Amin Nordin

Roslan Abdul Hakim

Nor Azam Abdul Razak

Muhammed Abdul Khalid

Zakariah Abdul Rashid

Khalid Abdul Hamid

Jln. Sultan Hishamuddin

Shadiyah Abdul Shukor

43600 UKM, Bangi

Arsaythamby a/l Veloo

Kiew Hwee Bin

Norlida Hanim Mohd Salleh

IJMS 19 (1), 135 (2012)

THE FUTURE OF MONETARY REFORM AND

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

Resource mobilization by financial intermediation

Figure 1. Central bank, commercial bank and real economy

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

Convergence of resource mobilization the money,

Figure 2. Circular flow of resource augmentation (and contraction)

Let the change of gold stock be denoted by DG (which in the special

IJMS 19 (1), 135 (2012)

Thereby, C/G = pG.

Now by mathematical integration over the entire stock of currency,

so also C/G = pG.

IJMS 19 (1), 135 (2012)

IJMS 19 (1), 135 (2012)

Delineation of vector of variables (T,x(T))