si MARA At 03:29 19 October 2016 (PT) B Emerald insight International Journal of Social Economics ‘An exploration of dynamic relationship between tourist arrivals, inflation, unemployment and crime rates in Malaysia Chor Foon Tang Article information: To cite this document: Chor Foon Tang, (2011),"An exploration of dynamic relationship between tourist arrivals, inflation, unemployment and crime rates in Malaysia”, International Journal of Social Economics, Vol. 38 Iss 1 pp. 50 -69 Permanent tink to this document: htip:/dx.doi.org/10.1108/03068291111091963 Downloaded on: 19 October 2016, At: 03:29 (PT) References: this document contains references to 67 other documents. To copy this document: permissions@emeraldinsight.com The fulltext of this document has been downloaded 9025 times since 2011* Users who downloaded this article also downloade (2009),"Crime and economic conditions in Malaysia”, International Journal of Social Economics, Vol. 36 Iss 11 pp. 1071-1081 http://dx.doi.org/10.1108/03068290910992624 (2002),"Inflation in Malaysia", International Journal of Social Economics, Vol. 29 Iss § pp. 411-425 http:// dx.doi.org/10.1108/030682902 10423632 ‘Access to this document was granted through an Emerald subscription provided by emerald-srm:434496 [] For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. 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The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation, “Related content and download information correct at time of download.Downloaded by Universit Teknologi MARA At 03:29 19 O¢ sue and ull ext archive ofthis journal is available at ight.com/0306-8293.hemn ‘www emeraldin YSE 38,1 50 Received February 2010 Revised March 2010, ‘Accepted April 2010 Goer) cs a Si conase Dor ness Es An exploration of dynamic relationship between tourist arrivals, inflation, unemployment and crime rates in Malaysia Chor Foon Tang Department of Economies, Facully of Economics and Administration, University of Malaya, Kuala Lumpur, Malaysia Abstract Purpose - The main purpose of this study is to examine the dynamic relationship between tourist arrivals, inflation, unemployment and crime rates in Malaysia. This study covered the annual data from 1970 to 2008, Design/methodology/approach - The multivariate Johansen uselius cointegration test_ is ‘employed to examine the potential long-run equilibrium relationship. While the Granger causality test within the vector error-correction modelling (VECM) framework is applied to determine the causal relationship between crime rate and its determinants. Findings ~ The Johansen Juselius cointegration test result reveals that the variables are cointegrated and the dynamic ordinary least squares estimator suggest that unemployment, inflation and tourist arrivals are positively related to crime rates in Malaysia, For Granger causality, in the long-run tourist arrival, inflation and unemployment rates Granger cause crime rate in Malaysia, However, inthe short un we find bilateral causality between unemployment, crime and tourist arrivals. Finally, the variance slecompositions and impulse response functions analyses implied that unemployment, inflation and {ourist arrivals are important in expiaining the variation in crime for Malaysia, Originality/value ~The estimated crime rate function for Malaysia demonstrated that promoting supply-side economy an also increases the numbers of police and patrolling duties inthe potential crime areas will reduce the crime rate in Malaysia and in the same time attract more tourist arrivals to Malaysia, Keywords Crimes, Inflation, Unemployment, Tourism, Malaysia Paper type Research paper 1. Introduction ‘Throughout almost two decades since 1990, reducing crime rate in Malaysia has been viewed as an urgent task for policymakers and also the Royal Malaysian Police (RMP) department, because it has a deep impact on socio-economics development. Beginning, from the twentieth century, crime rate in Malaysia has increased tremendously’ ‘The statistics compiled by RMP shows that crime rate in Malaysia surged from 68,000 cases in 1990 to approximately 182,000 cases in 2000. For a decade, the crime rate in Malaysia has increased about 165 per cent (on average 165 per cent a year) Furthermore, this criminal statistics continues to increase and created a new record in the Malaysia's history with approximately 250,000 cases in 2008. In other words, JEL classification ~ (22, E31, K14, L&3 The author would like to thank the anonymous referees. The author would also like to acknowledge Kevin Fernandez for proofreading the first draft ofthis paper. ‘The usual disclaimer applies,Downloaded by Universiti Teknologi MARA At 03:29 19 October 2016 (PT) almost 685 cases occurred per day or about 30 cases occurred per hour. No doubt, the crime figure in Malaysia is relatively low compared to the high crime rate economies; however, it has created Malaysian awareness to call for effective strategies to combat the critical criminal phenomenon. Therefore, it is of utmost important to establish an empirical study to examine the determinants of crime rate in Malaysia. We are aware of the fact that, investigation on the determinants for crime rate is not a fresh area of exploration; however, the surging trend of crime rate in Malaysia has sparked the interest of many researchers to investigate factors behind the increasing pattern to provide valuable information for policymakers to combat crime. For Malaysia, studies on crime are relatively scarce, At best, we only observed several published studies on crime rate for the case of Malaysia. Among them are Meera and Jayakumar (1995), Sidhu (2005), Habibullah and Law (2007), Baharom and Habibullah (2009), Habibullah and Baharom (2008) and Tang (20096). Initially, Meera and Jayakumar (1995) estimated the crime function for Malaysia through the simuitaneous equation technique. Their study demonstrated that crimes in Malaysia are affected by three major categories of determinants. Among them are: (1). deterrence and punishment; (2) economic or incentive of crime; and (3) socio-demographic. ‘They found that unemployment in Malaysia is positively related to crime rate and statistically significant at the conventional level. This result supports the presence of criminal motivation theory (Becker, 1968). Ironically, this study does not take into consideration the order of integration dd) for each series under consideration; therefore, the provided regression results may be spurious if the estimated variables are nonstationary (Granger and Newbold, 1974; Phillips, 1986). In the similar vein, Sidhu (2006) also found that unemployment is an important determinant to explain the increasing pattern of crime rate in Malaysia. However, his study also falls into the same category of methodological flaws as Meera and Jayakumar (1995), Apart from that, Habibullah and Law (2007) attempt to investigate the connection between crime rates and financial determinants (e.. real per capita income, financial wealth and lending rate) in Malaysia with annual data from 1973 to 2003. Their findings suggested that crime rate and its determinants in Malaysia are co-move in the Jong run, Surprisingly, the results of variance decompositions analysis based on vector error-correction model (VECM) implied that criminal activity in Malaysia cannot be explained by the selected macro-financial instruments. In addition, Baharom and Habibullah (2009) demonstrated that crime rate in Malaysia is not subjected to income inequality phenomenon, On the other hand, Habibullah and Baharom (2009) examined the effect of real income per capita on 12 categories of crimes in Malaysia. Their findings suggested that in a strong economic performance all categories of criminal activities will increase, except armed robbery. These contrary evidences may be attributed to the omission of relevant variables such as inflation and unemployment (Tang and Lean, 2007). As a result, the existing empirical studies are not without questions and the results should be accepted with caution. Owing to the limitation of the previous studies, Tang (2009) employed annual data from 1970 to 2006 to re-investigate the crime function for Malaysia with the explanatory variables of unemployment and price level, The Johansen's cointegration test suggests that Crime rates in Malaysia 51eknologi MARA At03:29 19 October 2016 (PT) Downloaded by Univer SE 38,1 52 unemployment and price level are cointegrated and both variables are positively related to crime rate in Malaysia, To this end, most of the crime literatures in Malaysia were focused on the impact of unemployment and income, but they have omitted some potential determinants such as inflation and tourist arrivals. Asa result, the earlier empirical studies may have lost some valuable information and have caused the misspecification problem to emerge. In the past literatures, several studies done abroad have observed the crucial effect of inflation on crime Curtis, 1981; Ralston, 1999; Teles, 2004; Tang and Lean, 2007, 2009). They claimed that inflation will reduce the purchasing power and increases the cost of living, Therefore, crimeratemay increase when an individual is unable to maintain their standard of livingas before. Moreover, Tang and Lean (2007) argued that thisis not an immediate phenomenon Decatse itis time consuming for inflation to gradually “reduce” the purchasing power. ‘Apart from that, the tourism-crime literatures have indicated that crime and tourism are closely related. However, the relationship between crime and tourism is mixed (Pizam, 1982), On one hand, MePheters and Stronge (1974) conducted an empirical study on the relationship between crime and tourism in Miami, Florida. They found that the effect of tourism on crime rates in Miami is positive and statistically significant at the 5 per cent level. In line to that, Ryan (1993) pointed out that tourism is frequently used asa means to smuggle drugs from country to country. Moreover, the author also documented that tourists are the potential victim of crimeand hence the increase of tourist arrivals willalso increase the crime rates, Eventually, the author concludes that tourism is the catalyst of criminal activities. Similarly, Brunt et al 2000) also demonstrated that the influx of tourist is positively contributes to crime rates. Therefore, tourist arrival is an important determinant for the change in crime rates. Harper (2000) performed a brief survey on tourist robbery in the French Quarter in New Orleans, Louisiana. Consistent with Ryan (1993) finding, the author observed that tourists are the victim of crime and there are certain degree of planning and selection criterion of a victim such as time, location and tourists behaviour. For example, the frequency of tourist robbery is very high during weekends because more people to choose on the weekends and the robbers are easy to hide in the crowd and escape. On the other hand, Levantis and Gani (2000) examined the relationship between crime and tourism in eight developing economies of the Caribbean and the South Pacific. The author found that crime rate and tourists arrivals are inverse relation and it is statistically significant at the 5 per cent level for all the selected ‘economies, except Solomon Islands, In addition, Pizam (1999) noted that when concerning. the issue of tourism and crime or safety, tourists willing to cancel or to postpone the travel destination or to choose alternative travel destinations that involve less risk. Obviously, salety is the primary concern for tourists when choosing travel destination, thus tourism and crime is negative relation (Barker ef al, 2002; Alleyne and Boxill, 2003) Motivated by the imperfections of the existing empirical studies for crime rates ia, the goal of the present study is to re-assess the relationship between crime rates and its determinants (ie. unemployment, inflation and tourist arrivals) in Malaysia within a multivariate framework with the updated dataset from 1970 to 2008. This study is more comprehensive compare to the earlier studies on crime rate in Malaysia. This study will be implemented in four steps. First we incorporate two novel determinants — inflation and tourist arrivals into the conventional unemployment-crime (U-C) model specification to avoid the mis-specification problem and further explain the criminal behaviour in Malaysia, Second, we employ Phillips and Perron (PP, 1988) unitDownloaded by Universiti Teknologi MARA At 03:29 19 October 2016 (PT) root test and also Kwiatkowski ¢¢ al. (KPSS, 1992) null stationary test to ascertain the degree of integration for each series under investigation. Third, we applied the Johansen and Juselius (1990) multivariate cointegration test in association with the Pantula's (1989) principle to examine the presence of long-run equilibrium relationship between crime rate and its determinants in Malaysia. Fourth, the forecast error variance decomposition analysis and impulse response function will also be used in this study to examine the dynamic interrelationship between crime rate and its determinants. ‘The remaining part of this paper is organised as follows. Section 2 will briefly discuss the data, model specification and econometric techniques used in this study. ‘The empirical results of this study will be reported in Section 3 and finally the conclusion and policy implications will be presented in Section 4. 2. Data, model specification and econometric techniques 2.1 Data and model specification ‘This study utilised the annual time series data covering the period from 1970 to 2008 ‘The crime rate, unemployment rate, inflation rate and tourist arrivals data were extracted from various sources such as Intemational Monetary Fund (MP), International Financial Statistics (IPS), United Nation Crime and Justice Information Network (UNCJIN), Euromonitor International, the RMP report, Malaysia Economic Reports and Yearbook of Statistics Malaysia. All the data were transformed into natural logarithm form, except unemployment rate and inflation rate. Broadly speaking, the conventional specification for U-C model only takes into consideration the unemployment rate. Therefore, the traditional U-C model is given as follows: CR = FUR) Q) where CR, and UR; represent the crime rate and unemployment rate at time t. According to the criminology theories, the effect of unemployment on crime rates can be either positive or negative. Becker (1968) suggests that crime and unemployment rates should be positively related, because when people are unemployed their legitimate ‘financial resources will be lower than before, hence it motivates them to engage in criminal activities. This is known as criminal motivation theory. On the contrary, the criminal opportunity theory developed by Cantor and Land (1985) postulated that the relationship between unemployment and crime rates should benegative. This isa victimisation theory of criminology. This theory noted that crimes happen when there are potential victims in circulation. Rationally, when people are unemployed they tend to stay at home or close-by within their neighbourhood; therefore, the circulation of people decreased and they may have more protection on their property. Under this perspective, the crime rate tends to be low whenever there is an economic slowdown or the unemployment rate increases. In this study, we extend Tang and Lean (2007) study by incorporating tourist, arrivals into the model to examine the criminal behaviour in Malaysia. The estimation model is presented as follows: In CR, = by + BUR; + boINF; + by In VA, + ey @ where In denotes the natural logarithm, In CR, represents the crime rate per 100,000 population, UR, is the unemployment rate and JVF; is the inflation rate and In VA, represents the tourist arrivals at time f, respectively. The residuals e, are assumed to be Crime rates in Malaysia 53feknologi MARA AtO03:29 19 October 2016 (PT) Downloaded by Uni YSE 38,1 54 spherically distributed and white noise. According to Tang and Lean (2007) the relationship between INF; and In CR, is expected to be positive (by > 0), but this effect will not happen immediately because it will gradually reduce the purchasing power of money, ultimately ‘motivated an individual to involve into criminal activities (Allen, 1996; Ralston, 1996), Nevertheless, the effect of tourist arrivals on crime rate can be either positive or negative. On one hand, when the tourist arrivals increase the number of people in circulation will increase, thus more victims and the crime rate will increase (Harper, 2000), In addition, Ryan (1993) noted that tourists are the provider of victims for crime. ‘Therefore, tourists arrivals and crime rate is positively related. This is in line with the criminal opportunity theory assertion. On the other hand, tourist arrivals will create employment opportunity for labour force and reduce the unemployment rate (Lean and Smyth, 2008), According to criminal motivation theory, when the rate of unemployment is high, crime rate tends to be low. Therefore, tourist arrivals can also be negatively related to the crime rate through the effect on unemployment. 2.2 Mutivariate cointegration test ‘According to the econometric theory, if the series under investigation are non-stationary and are integrated of order one, [(), they might possess a linear combination that is stationary. If this is the case, the estimated variables are said to be cointegrated. In other words, there is a potential long-run equilibrium relationship between the estimated variables. In this section, we will briefly discuss the multivariate cointegration procedure suggested by Johansen (1988) and Johansen and Juselius (1994) to examine the presence of long-run relationship. This approach is nothing more than the multivariate generalisation version of Dickey-Filler unit root tests. Therefore, as long as the cointegrating vector(S) is present, the estimated variables are J(1) and non-stationary at level (Holden and Perman, 1994), Indeed, Enders (2004) documented that Johansen's cointegration test can handle variables with different orders of integration, I(d), Evidently, Johansen's cointegration test is valid although the order of integration is mixed (Sinha and Sinha, 1998; Tang, 2009). Gonzalo (1994) simulation study noted that the Johansen’s test is superior to other cointegration tests even when the residuals ate non-spherically distributed. Moreover, Haug (1996) added that the Johansen's test has less size distortion. Therefore, this cointegration test is considered to be more robust than others. To implement the multivariate cointegration test, we estimate the following VECM framework: AlIncR, InCR;-) AUR; UR AW, = AINI =O), +01 INF), ainvA, InVA,- AlnCR,-; AMCR,-i41 ® au AUR 153 AT ave [PFET ara Ain VA; Alm VA-ai é = a 3 2 Here, 4 is the first difference operator (WW, — W»1), D,, a deterministic vector Crime rates (constant and deterministic trend) and @ a matrix of parameters for the deterministic in Malaysia vector D,. The residuals py are assumed to be spherically distributed and white noise and b is the lag structure in the VECM framework. The (4X4) I matrix contains information of the long-run equilibrium relationships between the variables under consideration. In addition to that, we can decompose II = af’, where a denotes the speed of adjustment to disequilibrium, while @ is the cointegrating vector. 55 Johansen (1988) and Johansen and Juselius (1990) proposed two likelihood ratio (LR) tests (ie. trace test and maximum eigenvalues test) to examine the numbers of cointegrating ranks, The trace and maximum eigenvalues value tests statistics are LRO ace) = They In — Ai) and LROAmas) = —T Ind ~ Avya), respectively Where 7 is the number of observations and A, the eigenvalues y= A= Ay BA 23 Granger causality test In this section, we turn to discuss the Granger causality test used in this study. If the estimated variables are found to be cointegrated, we can proceed to examine the causality direction between the variables of interest through the error-correction modelling (ECM) framework. Examination of causality direction is of utmost importance for policymakers to formulate an appropriate strategy to combat crime ‘The following ECM model will be estimated to ascertain the causal relationship: AInCR; a ‘Ans iz: Ari Aus AmCR) AUR, ay Ani Avi Agi Aza AUR,-; ain, |= Jas} *}aus Avs Ass doa ]*| awe |* Aln VA; a Ani Agi Agi Asa Aln VAy-1 Any Asp Aisp Aup] [AlnCR-p Ang Any Any Arp AUR,-p Ang Axzy Amy Asp || AINFi-p Ang Avy Assy Any || SInVArp x [BCT.-1] + S28 Here, the residuals |€;1, €2r, €3., €4:] are assumed to be normally distributed and white noise, ECT; the one period lagged error-correction term derived from the cointegrating vector. However, this term will be excluded if the variables underMARA At05:29 19 October 2016 (PT) Downloaded by Uni IJSE 38,1 56 Table I. ‘The results of unit root tests investigation are not cointegrated. Eventually, the short-run Granger causality test is catried out by computing LR test statistics on the first difference lagged explanatory variables while the ¢-significance of the ECT; represent the long-run causality direction and also implied that the observed cointegration relation is valid (Kremers et al, 1992). 3. Empirical results 31 Unit root tests results Review to Granger and Newbold (1974) and Phillips (1986) studies noted that in the time series analysis, the time series properties such as unit root or order of integration have to be taken into account before proceeding to estimate a regression model (Yule, 1926). This is because the estimation results may be spurious if the estimated variables are non-stationary and/or non-cointegrated. In addition to that, Stock and Watson (1989) pointed out that when a model includes non-stationary variable(S), the usual test statistics (e.g. tstatistics, F'statistics and R*) may be not valid because it does not follow the standard distribution. In this sense, the null hypothesis of a unit root (ie. PP) and also the null hypothesis of stationary tests (i.e. KPSS) are employed to investigate the degree of integration. The unit root tests results are reported in Table I. At the 5 per cent significance level, both the PP and KPSS tests suggest that all the variables arenot stationary at level, except inflation rate. Therefore, we surmised that all the estimated variables fin CR,, UR,, INF), In VAr] are integrated of either 1(0) or 11) process. This finding is contrary to Nelson and Plosser’s (1982) assertion that most of the economic series are non-stationary at level, but it is stationary in first differenced form. 3.2 Johansen-Juselius cointegration results Having observed that the estimated variables are integrated of either 10) or 1(1) process, we now proceed with the Johansen-Juselius cointegration test to determine the numbers of cointegrating rank in the four endogenous variables system. In applying the Johansen. Juselius cointegration test, there are two important things that we have to consider. First, Stock and Watson (1993) noted that Johansen's test is sensitive to the Jag structure used in the VECM system. Second, Johansen (1995) emphasised that the choice of deterministic components (i.e. constant and trends) of a model has important Pp. -167 @. 0.465 —483 aie og 183 Q. 0525 -83 ort 0.088 573 or 017 ue (@o)""* oan 278 2 0758 “109 or 0198 Notes: Significance at: “10, °"5 and °*°1 per cent; PP and KPSS refer to Phillips and Perron and Kwiatkowski tal (1992) unit oot tess; the bandwidth for PP and KPSS tests are selected using the Newey-West Bartlett keel; figure in parentheses denotes the optimal lag length and bandwith; the critical values for PP test are obtained from MacKinnon (1996), while the asymptotic critical values for KPSS test are abtained from Kwiatkowski ef al (1982)Downloaded by Universiti Teknologi MARA At 03:29 19 October 2016 (PT) implications for the asymptotic distribution on the LR test statistics. Therefore, we have to ascertain the optimal lag structure and also the deterministic components accommodated into the VECM system. With the assistance from Schwert (1989) formula [4 = int {4(7/100)°} | and system-wise Akaike’s information criterion (AIC), we found that three years lag in the VECM system is the best. Interestingly, this is in line with the conventional wisdom that the lag structure for annual data analysis should not exceed three years (Enders, 2004), Next, we determine the eppropriate model for Johansen-Juselius cointegration test through the Pantula’s (1989) principle suggested in Johansen (1992) and Hansen and Juselius (1995). Generally, there are five models considered by Johansen (1995); however, we only consider Models 2-4 because Models 1 and 5 are rarely used in economic analysis. Moreover, Ahking (2002) also pointed that Models 2-4 are the most plausible models in empirical application. Apart from that, several Monte Carlo evidences demonstrated that in small sample the Johansen's cointegration test is biased towards rejecting the null hypothesis of no cointegration (Reimers, 1992; Cheung and Lai, 1993). Furthermore, Podivinsky (1998) finds that the asymptotic critical values for Johansen's test may be inappropriate when applied to sample sizes less than 100. Therefore, we employed the Cheung and Lai (1993) response surface procedure to correct the Osterwald-Lenum (1992) critical values for small sample Johansen’s cointegration tests. Table Il reports the Pantula’s principle test results. In Table II, both the trace test LR(Ayace) and also the maximum eigenvalue test LR(Amax) Suggest that Model 3 will be the most appropriate model for this study, because the first time null hypothesis cannot be rejected is located at Model 3. Therefore, the Johansen-Juselius cointegration test results for Model 3 are presented in Table III, Panel A. At the 5 per cent significance level, both LR tests are consistently shown two significant cointegrating vectors, meaning that the crime rate and its determinants are co-move in the long run{1}. ‘As the estimated variables are cointegrated and the interest of this study is to examine the response of crime rate to inflation, unemployment rates and tourist ull hypothesis Model 2 Model 3 Model 4 ERO gare) tet 0 4 - ~ - y 1 3 ” “ * 2 2 * xe x 3 1 x x x ERO pax) test 0 4 - - - 1 3 ¥ xe x 2 2 x x x 3 1 ed x x Notes: *The first time that the null hypothesis cannot be reiccted: the 1 represents the null hypothesis is rejected atthe 5 per cent level, while x: denotes the null hypothesis cannot be rejected at the 5 per cent level; the critical values derived from the response surface procedure developed by Cheung and Lai (1989) were used Crime rates in Malaysia 57 Table Il. ‘The Pantula’s principle test resultsDownloaded by Universiti Teknologi MARA A‘ 03:29 19 October 2016 (PT) IJSE 38,1 Table I. ‘The result of Johansen cointegration test, Series: n CR, URy, INF), In VA, Adjusted critical Hypotheses values* Ho Ha LR tests statistics 5% 10% Panel A: multivariate cointegration test ERO pee) r=1 95.650"* 6590 61.240 r=2 4g802°" 41466 37309 p23 19871 18574 re4 om 3748 1 46818"* 38170 34726 rs 2 28932" 20569 26118 r=2 3 19759 19840 16949 r=3 4 out 503208777 Panel B: dsnamic OLS cointegrating vector inc, 7 INR), in Vay, Constant 1.000 om** —ag7*** ——gaos*#* 0.492. Notes: Significance at: “10, **5 and **"1 per cent; “critical values were derived from the response surface procedure developed by Cheung and Lai (1993); the Akaike’s information eriterion (AIC) was used to select the optimal lag order arrivals, therefore cointegrating vectors are estimate by dynamic ordinary least squares developed by Saikkonen (1991) and Stock and Watson (1993). The estimated cointegrating vectors are reported in Table Ill, Panel B. The results show that all the explanatory variables are statistically significant and positively related to crime rates in Malaysia. The finding is in line with Tang and Lean (2007) study that inflation and unemployment rates are the important motivation factors for crime in the long run, Moreover, the positive effect of tourist arrivals to crime rate supports the criminal opportunity theory that crime rate will increase if circulation of people increase (more victims). This is also consistent with the findings of MePheters and Stronge (1974), Ryan (1993), Brunt ef al, (2000) and Harper (2000), 3.3 Granger causality test results Although the Johansen-Juselius cointegration test shows that crime rate and its determinants are cointegrated, it does not indicate the causality direction. This is also documented in the Granger representation theorem. Therefore, we proceed to examine the causal relationship between crime rate and its determinants within the exror-correction models. The optimal lag structures for VECMs are determined by AIC because of its best performance in small sample analysis (Liew, 2004), The Granger causality test results are reported in Table IV. The one period lagged error-correction terms, ECT; had a negative sign for all the error-correction models, These imply that the estimated variables are not overshooting and hence the long-run equilibrium relationship is attainable. For long.run causality, only in the unemployment rate VECM ‘we find that the coefficient for ECT, - term is statistically insignificant at the 10 percent level. Nevertheless, the ECT; term is statistically significant at the 1 per cent level when crime, inflation and tourist arrivals are the dependent variables in the VECM.i 59 z 2 é i é Crime rates in Malaysia causa rado ayy ua sad [,, PUES, , “OL, 2B aoMEDMIUIS 44 Ory) uouei uoeunosuy SamtenY Ke e-] tavo~ ust 19 ay [e000] 92st sige = {86901 Apu stg yop (ud) 9102 9400 61 62:F01V VUVIN BoIOH PE, HESBAIUN 4 papeOqEKOGjeknologi MARA At 03:29 19 October 2016 (PT) Downloaded by Univer YSE 38,1 60 ‘This implies that in long-run inflation, crime and tourist arrivals in Malaysia are bilateral causality in nature, while unemployment is only uni-directional causality running from unemployment to crime, inflation and tourist arrivals in the long run. For short-run causality, we find that inflation does not Granger-cause crime rate in Malaysia at even the 10 per cent significance level. This results is in line with Tang and Lean (2007) argument that the effect of inflation on crime may not vindicate in the short run, In addition to that, we also find that tourist arrivals do not Granger-cause inflation, but inflation Granger-causes tourist arrivals, This suggests uni-directional causality running from inflation to tourist arrivals. Interestingly, the computed Granger causality results reveal that unemployment, tourist arrivals and crime are bilateral causality in nature at the conventional significance levels (ie. 1, 5 and 10 per cent), It may be surprising to detect that the Granger causality runs from crime to ‘unemployment and to tourist arrivals, Pirst, the presence of reverse causation runs from crime to unemployment can be justified by Grogger (1992) and Borland and Hunter (2000) studies. They found that employer may discriminate individual who has been arrested and/or convicted of an offence; hence the chances to be employed will reduce. Second, some empirical works such as Pizam (1999), Levantis and Gani 2000), Barker ef al. 2002) and Alleyne and Boxill (2003) have found that increase of crime rate will reduce tourist arrivals because it will affect the tourist's safety or safety perceptions. ‘Therefore, a reserve causality evident runs from crime to unemployment and tourist arrivals are plausible. To this end, our analysis has been restricted to within sample analysis which is useful only for observing the potential exogeneity or endogeneity relationship within sample; however, in the next section we consider the dynamic interrelationship between the variables in the system [In CR;, UR;, INF), ln VAr] beyond the sample period. 34 Variance decompositions and impulse response functions analyses Liitkepohl (1994) pointed out that the estimated coefficients of cointegration relations cannot be interpreted as elasticities because the ceferis paribus assumption may not be meaningful. For academic purposes or theoretically, the assumption of ceteris paribus, that is, holding other factors constant may be valid and useful; however, there is no constancy condition in practice. Therefore, itis inappropriate to interpret the coefficients ‘of cointegration relations as elasticities. In this respect, the variance decompositions and impulse response functions analyses would be more informative. The variance decompositions provide information about the percentage of the variation explained by its own shock versus shocks to other variables in the system, while the impulse response fumetion examine the dynamic interaction between variables in a system, ‘The results of variance decomposition analysis are summarised in Table V over a 12 year periods. Among four variables in the system, crime is relatively the most exogenous variable in the short run, while tourist arrivals are relatively the most exogenous variable in the long run. After two years, 932 per cent of the variation in the forecast error for crime is attributed to its own shocks, while 91.7, 843 and 77.2 per cent of the variation in the forecast error for unemployment, inflation and tourist arrivals, respectively, are attributed to their own shocks. In the long run (at the end of 12 years), we find that the forecast error variance for crime, unemployment, inflation and tourist arrivals are 40.8, 32.5, 60.5 and 718 per cent, respectively. In explaining shocks to crime rate in ‘Malaysia, unemployment relatively more important than inflation and tourist arrivals in the short run (at the four years period), Nevertheless, in the long-run unemployment and5 q z = z 2 2 Years Crime Unemployment Inflation ‘Tourist arrivals Relative variance of crime 1 100.00, 0.00 00 0.00 2 320 020 567 098 3 91.49 024 586 141 4 amt 940 738 Las & 129 596 1661 1014 10 4234 2469 2311 9.86 12 40380 23066 2400 1155 Relative variance of unemployment 1 013 9987 0.00 2 333 91.73 137 3 283 8295 145 4 3.06 7484 5 10.24 5853 10 10.70 4047 12 987 3247 Relative variance of inflation 1 42 08 2 646 095 3 499 798 4 721 1231 8 107 Bn 10 708 1320 2 702 1320 Relative variance of tourist arrivals 1 os2 23.20 14 2 640 1502 139 3 B44 1099 200 4 3043 840 Sas 5 1011 521 1253 10 976 5.05 1364 B 952 527 1343 Note: The Cholesky ordering: crime, unemployment, inflation and tourist arrivals Crime rates in Malaysia 61 Table V. ‘The resulis of forecast ertor variance decomposition analysis inflation are equally important in explaining shocks to crime in Malaysia. The combination of unemployment, inflation and also tourist arrivals explained 59.2per cent of the variation in the forecast error for crime after 12 years. Specifically, 47.6 per cent of the shocks in crime are explained by unemployment and inflation innovations after 12 years, Thus, the remaining 11.6 per cent of the forecast emor variance for crime are explained by tourist arrivals innovations. Therefore, regression result for crime function may be biased if these variables are omitted. Apart from that, we also observe that tourist arrivals are relatively more important than the rest ofthe variables in explaining the variation in the forecast error for unemployment and inflation. After three years 11.5 per cent of the vatiations in unemployment and 227 per cent of the variations in inflation are explained by tourist arrivals. Moreover, the explainable variations by tourist arrivals increased to 42 per cent for unemployment and 192 per cent for inflation. Besides that, crime rate explained 10 per cent of the variation in the forecast error for unemployment after eight years. Finally, most of the variations (ie. 71.8 per cent) in tourist arivals are explained byYJSE its own innovations, While shock to crime, unemployment and also inflation only 381 explained 28 per ent ofthe variation in tourist arrivals. : ‘Next, the impulse response function of crime, unemployment, inflation and tourist arrivals to one-standard deviation shocks in crime, unemployment, inflation and tourist re shown in Figures 1-4{2]. Starting from Figure 1, we observe that, shock in ‘unemployment Jeads to a decrease in crime rat forthe first six years, however, crime 62 rate increase tremendously between years six and 12, This implies that in the shore run the relationship between unemployment and crime rate is negative, while in the long run the effect has changed to positive. This finding is corroborated with Cantor and Land (1985, 2001), Greenberg (2001) and Paternoster and Bushway (2001) assertion that the 0s 6.06 Inflation x, 0.08 0.02 0.00 MARA At 03:29 19 October 2016 (PT) Figure 1. aa Tourist arias 22" Impulse responses of ee 2 cine toa nestancerd “008 deviation shocks in crime, unemployment, inflation % and tourist arrivals 0.06 5 ras. is 67 8 9 0 2 3 5 06 z h 3 5. nemploient : oad a Inflation. 02 Figure 2. 02 Impulse responses of tunempioyment to a ‘onesstandard deviation shocks in unemployment, crime, inflation and touristDownloaded by Universiti Teknologi MARA At 03:29 19 October 2016 (PT) 025 Tourist ous 0.10 005 0.00 0.05 =0.10 0.15 12 3 4 5 6 criminal opportunity theory explained the criminal behaviour in the short run, while the criminal motivation theory is a long-run phenomenon. In general, most workers will have some savings and unemployment benefits provided by the existing government to sustain them for a time after they are unemployed. Apart from that, over the entire 12 years period shock to inflation exert a positive impact on crime in Malaysia, and while shock to tourist arrivals decrease crime rate, but after six years the crime rate increases. In Figure 2, we observe that a shock to crime increases the unemployment tremendously for the first eight years but stabilises thereafter. This is in line with the notion that the likelihood to be employed reduces for those who has committed criminal activities (Grogger, 1992; Borland and Hunter, 2000). Interestingly, the response of Crime rates in Malaysia 63. Figure 3, Impulse responses of inflation to @ one-standard deviation shocks in inflation, unemployment, crime and tourist arrivals, Figure 4, Impulse responses 0 tourist arrivals toa one-standard deviation shocks in tourist arvivas, crime, unemployment and inflationDownloaded by Universiti Teknologi MARA At 03:29 [9 October 2016 (PT) YSE 38,1 64 ‘unemployment to a shock on inflation is sporadic. Inthe first three years it has a positive response, then a negative response in year six and a positive response in year seven onwards. A shock to tourist arrivals decreases unemployment in the first nine years, but stabilise thereafter. Turning to Figure 3, over the entire period of 12 years, shocks to unemployment, tourist arrivals and crime decrease inflation for the first seven years and stabilise thereafter. Eventually, Figure 4 implied that a shock to unemployment and inflation causes tourist arrivals to decrease sharply and stabilise after nine years. From the similar figure, we also notice that a shock to crime in Malaysia exerts a negative impact on tourist arrivals and stabilises after nine years, 4. Conclusion and policy implications Given that the crime rate for Malaysia has increased tremendously, it is extremely important to establish an empirical study to investigate the criminal behaviour in this country. This study attempts to investigate the dynamic relationship between tourist arrivals, inflation, unemployment and crime rate in Malaysia. The annual dataset from 1970 to 2008 were used to achieve the objectives of the present study. With the application of relatively comprehensive econometric methodologies for time series analysis, several conclusions could be drawn from this study. First, this study performed the Johansen Juselius cointegration test in association with Pantula’s principle and Cheung and Lai (1993) response surface procedure to examine the existence of potential longrun equilibrium relationship between crime rate and its determinants, The Johansen-Juselius cointegration test result shows that the variables under investigation are co-move in the long run, This reveals that tourist arrivals, inflation and unemployment rates are coalescing with the crime rate in Malaysia to achieve their steady-state equilibrium in the long run, although deviations may occur in the short run. Second, thepresence of cointegration relationship between the variables of interest indicates that there must be Granger causality in at least one direction. The Granger causality test within the VECM framework was employed to examine the causality direction between the variables of interest. The causality test result reveals that in the long-run inflation, unemployment rates and tourist arrivals Granger cause crime rate in Malaysia, Nevertheless, in the short run we observe uni-directional Granger causation running: + from inflation to tourist arrivals; and + from crime to inflation, Additionally, we also observe that unemployment, tourist arrivals and crime are Granger-cause with each others. ‘Through the variance decompositions and impulse response functions analyses, this study provides policymakers with additional insight on the relative importance of random shocks and the response of variables to the shocks. In the long run, most of the variations in rime are explained by unemployment and inflation. While, tourist arivals explained smaller portion ofthe variation in cime compare with the rest of twoexplanatory variables. Meanwhile, tourist arrival is the most important variable in explaining shocks to ‘unemployment and also inflaton. In similar vein, shock to unemployment rate will decrease the crime rate in the short run, while increase in the long run. Therefore, both the criminal ‘opportunity and the criminal motivation theories are vindicated in Malaysia, In addition to that, shock to inflation and tourist arrivals have a positive effect on crime rate in Malaysia, however, shock to crime rate has @ negative effect on tourist arrivals to Malaysia.sknologi MARA At 03:29 19 October 2016 (PT) Downloaded by Univer In view of policy implication, the findings of this study may shed some light to the policymakers that reducing inflation and unemployment could be one of the effective measures to combat crime rate in Malaysia, This is because the Granger causality and also the variance decomposition analysis results show that both unemployment and inflation are equally important in explaining the criminal behaviour in the long run. In ‘order to achieve this, policymakers may implement supply-side economic policy that is, shifts the aggregate supply (AS) curve to higher position, so that both inflation and unemployment rate will reduce simultaneously that will decrease crime rate in Malaysia. Although the empirical results indicate that the relationship between crime and tourist arrivals is strongly positive, the development of tourism industry may gauge more foreign exchange and create employment opportunities, thus reduce the number of tourist arrivals is not an ideal criminal prevention strategy for Malaysia. In this case, this study recommends the policymakers to increase the frequency and also the number of police on patrol duties in the potential crime areas (Sherman et al, 1989; Harper, 2000, 2001), thus improving tourist's safety which at the same time attracting more tourist arrivals to Malaysia This study endeavours to analyse the crime rates and its determinants in Malaysia, nevertheless, it does not denounce the fact that there are limitations to this discourse. ‘The first limitation of this study is that the analysis is at an aggregated level, Infiation, unemployment and tourist arrivals may have different effects on different categories of crimes. For example, Gale et al, (2002) argued that violent crimes are usually an outcome of hate and revenge; hence it may not be related to any economic determinants. Second, this is a country specific study, hence, the results and findings ‘would not accord a uniform mode] of macroeconomic policymaking to combat crime rates in other countries. Therefore, this study presumably would ignite further exploration in the Southeast Asia economies by taking into account the pitfalls of this study. As a result it would be expected that more comprehensive and effective regional criminal prevention strategies would be suggested. Notes 1. As the order of integration are mixture that is either 0) or M1) process, this study has also conducted the bounds testing approach to cointegration suggested by Pesaran ef al. 2001) to confirm the robustness of the cointegration results, The computed F'statistics for bounds test, 7919 is greater than the | per cent upper bounds critical values tabulated in Narayan (2005), Therefore, we surmise that the variables under investigation are co-integrated. This finding is cormoborated with the evidence suggested by JohansenJusclius cointegration results presented in Table III, Panel A. In order to save space, the complete bounds test results are not reported here but it is available upon request from the author. 2. This study does not include the standard deviation band because the econometric literatures documented that the standard deviations bands for impulse response are inappropriate ‘when the estimation sample siz is relatively small. For example, Kilian (1998) indicates that small sample performance of confidence interval bands ina large dimensional vector autoregression is unknown. Moreover, Kilian (1999) noted that the accuracy of standard eviation bands in small samples is poor and erratic. The author observed that for reasonable converge accuracy at least 500 observations are needed for the symmetric percentile- interval. 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A study in sampling and the nature of time-series’, Journal of the Roval Statistical Society, Vol. 89 No.1, pp. 1:63 About the author Chor Foon Tang is currently a PhD Student with the Department of Economies, Faculty of Economics and Administration, University of Malaya. He obtained his Master’s degree in Economic Management from the Universiti Sains Malaysia and Bachelor's degree in Economics from the Universiti Utara Malaysia. In addition, he has published his work in major international and domestic peer review journals namely Economics Letters, Energy Policy, Global Economic Review, International Journal of Tourism Research, Global Crime, Journal of Beonomic Studies, ‘Malaysian journal of Economie Studies, ternational Journal of Economics and Management, and others. Moreover, he isa reviewer for a wide range of scholarly journals and his biography being selected to list in the 28th edition of Who's Who in the World, which compiled the biography of ‘most accomplished persons in 216 countries and territories in the World. In 2010, he was awarded the Bright Sparks Programme by the University of Malaya. Chor Foon Tang can be contacted at tefoon@yahoo.com ‘To purchase reprints of this article please email: reprints@emeraldinsight.com Or visit our web site for farther details: www.emeraldinsight.com/reprints Crime rates in Malaysia 69é Downloaded by ‘This article has been cited by: 1. Abdul Saboor, Shumaila Sadiq, Atta Ullah Khan, Gulnaz Hameed. 2016. Dynamic Reflections of Crimes, Quasi Democracy and Misery Index in Pakistan. Social Indicators Research . [CrossRef] 2.Chor Foon Tang, Bee Wah ‘Tan, Than Ozturk. 2016. Energy consumption and economic growth in Vietnam. Renewable and Sustainable Energy Reviews 54, 1506-1514. [CrossRef] 3. 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