The Study on Economic Factors Influencing Malaysian Household Debt

Abstract

The number of Malaysian households with debt continues to rise, and this is considered as one of the consequences of the country's uncertain economy. As a result, the researchers were inspired to conduct research into the loan options available to consumers. The objectives of this research are; to examine the relationship and impact of macroeconomic drivers or variables on household debt in Malaysia and to determine which factor is the most important. The research used annual secondary data from 1984 to 2018 from reputable sources such as Databank, Knoema, Bloomberg and Bank Negara Malaysia. Gross Domestic Product (GDP), Unemployment Rate (UN-EM) and Inflation Rate (INF) were the three macroeconomic factors used. The relationship between macroeconomic factors and household debt is investigated using descriptive analysis, Augmented Dickey Fully (ADF) and Philips-Perron (PP) Unit Root Tests, Normality Test and Regression Analysis. All the three variables, namely GDP, UN-EM and INF, have positive relationships with household debt according to the multiple regression model test results. The UN-EM was the most prominent and followed by the GDP. According to the findings, the rise of these independent variables influences the rise in household debt. Only the GDP and UN-EM are proven to be important factors, whereas INF is determined to be inconsequential. The findings of this study confirmed that households use debt as a substitute for income to fund increased consumption due to rising living costs. The data suggests that the debt level is enormous and that the country is experiencing real difficulties. As a suggestion, the future researcher should experiment with other data structures, conduct additional research and include new macroeconomic variables.