PROSIDING PERKEM VIII, JILID 2 (2013) 748 - 757 ISSN: 2231-962X Persidangan Kebangsaan Ekonomi Malaysia ke VIII (PERKEM VIII) “Dasar Awam Dalam Era Transformasi Ekonomi: Cabaran dan Halatuju” Johor Bahru, 7 – 9 Jun 2013 Investigating The Co-Integration Among Electricity Production Function in Malaysia: Bound Testing Approach Hussain Ali Bekhet Graduate Business School, College of Graduate Studies University Tenaga Nasional (UNITEN) 43000, Selangor-Malaysia profhussain@uniten.edu.my, drbekhet1953@hotmail.com Nor Hamisham Binti Harun College of Business Management and Accounting, Universiti Tenaga Nasional (UNITEN), Muadzam Shah Campus, Pahang-Malaysia Hamisham@uniten.edu.my ABSTRACT The aim of the current paper is to investigate the long-run relationship among the factors of electricity production function in Malaysia. Time series data for production (Q), Gross Fixed Capital Formation (GFCF), labour (L), and energy (E) for the 1980-2012 period is used. To explore this relationship, production theory and time series model, ARDL, are applied. The results show that the individual variables are stationary in the first difference at the 5 percent significance level. The diagnostics test reveals that there is no serial correlation among the variables (between production and its production factors). Therefore, the result also shows co-integration among the electricity determinants, using the bound test approach, at 5 percent significance level. This result indicates the long-run relationship among production, capital, labour and energy in the electricity industry. Keywords: Production Factors, Electricity Industry, Unit Root Test, Bound Test, Malaysia. ABSTRAK Kertas kerja ini dibuat adalah untuk mengkaji hubungan jangka masa panjang terhadap faktor-faktor yang mempengaruhi sektor elektrik dengan menggunakan teori fungsi pengeluaran. Kajian ini menggunakan data siri masa yang terdiri daripada pengeluaran (Q), pembentukan modal kasar (K), tenaga kerja (L) dan tenaga (E) bagi tahun 1980-2012. Untuk mengkaji hubungan ini, teori pengeluaran dan model siri masa, ARDL digunakan. Keputusan kajian menunjukkan bahawa setiap data pegun pada pembezaan pertama bagi paras keyakinan 5%. Ujian diagnostik juga menunjukkan bahawa tiada hubungan persamaan di kalangan pembolehubah yang dikaji (iaitu di antara pengeluaran dan faktor-faktor pengeluaran). Kajian yang menggunakan pendekatan „bound test‟ menunjukkan bahawa wujudnya hubungan jangka masa panjang terhadap faktor-faktor pengeluaran di dalam sektor elektrik. Kata kunci: Faktor-faktor Pengeluaran, Sektor Elektrik, Ujian Kepegunan, „Bound Test‟, Malaysia. INTRODUCTION Many people think of production as highly structured, often mechanical process whereby raw materials are transformed into finished goods. Economists emphasize that production is also much more general concept, encompassing many activities not ordinarily thought as such. Frank (2008) defined it as any activity that creates present of future utility. Equation (1) shows that the relationship between inputs and outputs is formalized by a production function of the form, 1 [1] 1 Refer to Microeconomic Theory : Basic Principles and Extensions (Walter Nicholson)