Analysing Forces to the Financial Contribution of Local Authority to Sustainable

Development: In Perak’s Local Authority

CHAPTER 1

INTRODUCTION

1.0 INTRODUCTION OF STUDY

The local government in Malaysia is the lowest tier of administered under the states

and federal territories which in turn are beneath the federal tier. The federal Ministry

of Housing and Local Government plays a role in co-ordinating and standardising the

practices of local governments across the country.

Local government has the power to collect taxes (in the form of assessment tax), to

create laws and rules (in the form of by-laws) and to grant licenses and permits for

any trade and business in its area of jurisdiction area, in addition to providing basic

amenities, collecting and managing waste and garbage as well as planning and

developing the area under its jurisdiction.

Local governments are also known as local authority (Malay: Pihak Berkuasa

Tempatan, abbreviated PBT), headed by a civil servant with the title President (Yang

Di-Pertua) for rural districts and municipalities, and Mayor (Datuk Bandar) for cities.

In Perak, there is fifth teen Local Authorities (after these pronounce with PBT) covers

their different jurisdiction area. PBT are obliged by the Local Government Act 1976

(Act 171) to provide different services (such as street lighting, waste collection, public

parks, social services and environmental protection), and for this reason their revenue

involve their own taxes (assessment tax), licensing of business and trade, fees from

the building plan and approval, and public rental.

In the state level, the economic crisis has undermined the capacity of PBT to continue

provided public services to the society. Under this delicate financial situation, the

unequal economic development created significant imbalances between PBT in Perak

and municipalities especially vulnerable to problems like the budget deficit and
 Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

publics debt.

This unstable financial situation has attracted policymaker’s attention, specifically

regarding local authorities, whose high debt level and deficit of the budget, together

with its harmful effect on the economic development, have caused a process a policy

reforms aimed at promoting efficiency, balance budgets and the most important things

to sustain its financial development on public services.

1.2 BACKGROUND OF STUDY

PBT was standing by their own financial sources to provide the public services to the

society. All the PBT in Perak collecting the different rate of assessment tax, different

rate of licensing and permit and different rate of fees imposed for the housing and

town planning. Main revenue of PBT is from (i) Tax Income, which is imposed from

assessment tax, (ii) Non-Tax Income, which is imposed from licensing of the trade

and business, fees for the town planning for developers, public property rental, car

parking charges, compound and penalties and (iii) Non Revenue Income, which is

from state / federal government contribution/grant. With all these kind of income,

PBT use their own resources to entirely the cost of administration and operation for

the municipal services and also responsible laid to maintain housing in the jurisdiction

area, providing the amenities, facilities and services, control of planning permission,

collection of waste and cleaning services and also play the important roles in relation

to health services in the area.

This paper aims to analyze the factors that may influence the development of financial

sustainability of the PBT. Given that the local authority a huge volume of budget,

provide a great variety and quality of publics services, and the financial crisis

influence on the quality and amount of public services delivery. In this paper also, I
 Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

am analyze the impact of demographic and socioeconomic variables in the evolution

of financial sustainability. Therefore, finding in this research have identified variables

which may influence the financial sustainability of PBT’s managers, policymakers,

users of public services, voters and other stakeholders interested in public sector.

1.3 PROBLEM STATEMENT

According to National Budget Office, Ministry of Finance Malaysia, in its 1 st Asian

Public Governance Forum on Local Finance Management that was held in Lombok,

Indonesia in 2015 are indicates that there is a permanent fiscal gap between

expenditures obligation and tax revenue of the local government in Malaysia. Most of

the PBT depends on funding from state government and federal government and there

are financially autonomous. This is mean, all these PBT have controlled over their

financial include plans their own resources by the authority to collect the assessment

tax, licencing, fees of the town planning, there are as well spending that by giving the

public municipal services. It is important that local authorities restore their financially

autonomous status in order to perform their roles effectively.

The most important problem facing by PBT in Perak that lead to the financial

instability is PBT have a very limited resources compared on what they should spend

for the local amenities and services for the society.

1.4 RESEARCH OBJECTIVES

The objectives are set in order to have proper direction for the study. The objective

will be a target to be archived and achieving the objective will add value to this
 Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

research. Therefore, the objectives of the study are list down as follows:

1. To analyze the relationship between revenue of PBT against assessment rate.

2. To analyze the relationship between revenue of PBT against size of commercial

industries.

3. To analyze the relationship between revenue of PBT against income level of the

local population

1.5 RESEARCH QUESTIONS

Research question derived from the objectives set in the research objective. Therefore

the research question should directly look into the objective of the studies with the

purpose to come out with an answer:

1. Is there any relationship between revenue of PBT against assessment rate?

2. Is there any relationship between revenue of PBT against size of commercial

industries?

3. Is there any relationship between revenue of PBT against income level of the local

population?

1.6 SCOPE OF RESEARCH

Data collected for this research will include the data from January 2013 until

December 2017 (60 samples for each variable). Data trend will be tracked based on

monthly basis. Data collected from PBT’s Financial Report from 2013 until 2017. The

scope of the study will be monitored through certain indicator as follows:

Variable Indicator

Tax Income Assessment Tax collected

 Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

Non-Tax Income Non-Assessment Tax collected

Non-Tax Revenue Non-Tax Revenue collected

Arrears of Tax Income Total of assessment tax arrears

Size Of Industries No of Industries based on their assessment rate

Income Level of the Assessment rate.

Local Population High assessment rate imposed, assuming high value

of property, higher income

1.7 RESEARCH HYPHOTHESIS

Assumption is made that there is an existence of relationship between a minimum of

two variables or more. The relationship of the variables will be tested within the

theoretical framework of this research according to the research hypothesis. The null

hypothesis and alternative hypothesis will be defined. Null hypothesis is referring to

no significant relationship between dependent and independent variable and the

alternative hypothesis is referring to the existence of relationship. The research

hypothesis will be:

Hypothesis Hypothesis Testing

1 H0 There is no relationship between revenue of PBT against assessment

rate
 Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

H1 There is a relationship between revenue of PBT against assessment

rate

2 H0 There is no relationship between revenue of PBT against size of

commercial industries

H1 There is a relationship between revenue of PBT against size of

commercial industries

3 H0 There is no relationship between revenue of PBT against income

level of local population

H1 There is a relationship between revenue of PBT against income level

of local population

1.8 SIGNIFICANCE OF THE STUDY

This study helps Malaysian to gain a better understanding on the factor that affecting

the financial sustainability of the PBT in Perak. Correct information and

understanding will resulted in corrective action taken to curb the unsustainability. At

the same time this study will help the following parties to manage, plan and respond

to the how to sustain the PBT’s financial management and development with regard

to the changes and different level of income;

1.8.1 State Government / Federal Government

This study should be able to provide the policy maker difference perspective

on the forces to developing economic of the PBT, especially how to increase

the revenue of the PBT that have significant relationship with the tax income.

Information gather will help state government / federal government to apply

the correct monetary policies to curb the unsustainability.

 Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

1.8.2 Local Society

If the revenue of the PBT can be increase and PBT itself have the sufficient

budget to manage the local area, local society will experience the satisfy of

municipal services, all the public complaint can be solve within the timeline

and safety and health of the local area was given priority. Increasing of the

revenue will also lead to continuous development of the local area and

supposedly many job opportunities can be realized

1.8.3 Future researcher

Not many studies on the financial sustainability of local authorities are done in

Malaysia. Therefore this study will open the path for the other research on this

particular topic. This study can be emphasized in order to ensure that the

results of this study will be used as a basis for uneven tax rate determination,

business and trade license rates and in dealing with factors of increasing tax

arrears

1.8 LIMITATION OF THE RESEARCH

Limitations of this research are listed below.

1.8.1 Time Constraint

This study need to be completed within short time of the period. Time

available for completion is within the four month timeline given by iNED to

researcher to conduct and finish this research.

1.8.2 Data Collection

 Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

Difference PBT was managing the different trend of income / revenue. The

rates of tax income imposed also are varying among the PBT. So the

researcher needs to properly understand and collect the exact data from all the

PBT, and not all the PBT are ready to give every single data about their

financial situation to others since they are bound with the confidentially

document.

1.8.3 Information Resources

The main resources are from the yearly financial statement from all PBT in

Perak. Internet also is the resources for data collection. Report, articles,

relevant statistic and research were searched through the internet. Internet is

fully utilised for the information searching. Hence, the statistic, finding and

figure could not be verified for the credibility and the accuracy of sources.

Nevertheless, it is still good medium for the sources of information.

1.9 DEFINATION OF TERM AND VARIABLES

1.9.1 Revenue of the PBT

Revenue of the PBT as being declared in their financial statement is from tax

income, non-tax income and non-revenue income. PBT are totally rely on this

kind of revenue to In local authority, the elements of tax income are from the

property / assessment tax. Assessment taxes are imposed on rated industries or

housing on the value set on taxable properties located within the jurisdiction

area. Assessment tax revenue is the main income for local authority which is

used to pay for services and maintenance on administration and operation.

Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

1.9.2 Non-Tax Income

The element of non-tax income in local authority is came from the

1.9.3 Natural Rubber

An elastic substance obtained from rubber tree that can be processed,

manufactured and transformed into variety of products. As for Malaysia

rubber industry, the rubber will be graded into certain standard called

Malaysian Rubber Standard. For example Malaysian Rubber Standard 20

(SMR20) is referring to the lowest quality of processed rubber with the ash

content is more than 1% and dirt is more than 0.15%. SMR10 or SMR05 will

have lower ash content and dirt compared to SMR20.

1.9.4 Gold (GLD)

A precious yellow metallic element, highly malleable and ductile, and not

subject to oxidation or corrosion. Due to the nature of the gold, it is suit to be

used as an investment and central bank around the world keep gold as a

reserve due to its monetary value in the gold.

1.9.5 Consumer Price Index (CPI)

The consumer price index expresses the current prices of a goods and services

comparing prices of goods and services in the same period for previous year.

Consumer price index will be an indication to measure the level of inflation of

particular country.
Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

1.10 SUMMARY

In chapter one overall introduction of the research which contains the study

background, research objectives, problem statements, research questions,

scope of study, theoretical framework, hypothesis statements, significant of

the study, definition of the term used and limitations of the study.

Then, chapter two will compare the findings of the research from previous

research done by other researchers that touch on the same issues and interest

also known as literature review.

Methodologies of the research in this study will be elaborated in chapter three.

Data will be tested using Eviews software version 9.5 (student lite version)

and will be analyzed in chapter four.

Lastly, chapter five is discussing on the conclusion and recommendations

based on the analysis done in chapter four. In chapter five, differences and

similarities of the finding between the studies (past and current) will be

compared and cross checked.

To conclude, this chapter represents the direction of the research and the

overview of the topic being investigated. This chapter will drive the research

into the next chapters of this study. Literature review will give better

understanding on the topic. Related study within the context of the dependent

and independent variable will be reviewed and cited. In depth understanding

will add value and provide good information for the research.

CHAPTER 2

LITERATURE REVIEW
 Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

2.0 INTRODUCTION

This chapter will look into the finding from the past research with more detail. This is

done in order to gain better understanding on the topic. Previous study related to all

the variables will be discussed, compiled and cited for the benefited of the study.

Finding from resources such as thesis, books, newspaper, magazine, articles, journal

and government publications will be extracted. Similarity and differences highlighted

will be value added to this research.

2.1 INFLATION RATE

Inflation rate is defined as the growth in price against the level of purchasing

power. Measurement of inflation rate is done by comparing two groups of

goods at two points in time by calculating the cost increase but not effect by

the changes in quantity. The increase in the supply of money also can be

referred as inflation impacted from the expansionary monetary policy

(Stepanova & Udod, 2012). There are a lot of factors contributed to the

inflation rate. Rabiul, et al. (2017) found that increased in unemployment rate

will reduce in inflation rate and vice versa. Inflation rate have negative

relationship with exchange rates, but when money supply increased, the

inflation rate will increased (positive relationship against money supply).

Study on commodities price by Theodore, et al. (2008), food based

commodities and energy components tend to be more volatile on monthly

basis compared to other component of inflation. They also noted that, core

inflation rate which omitted food and energy price is less volatile than total

inflation rate or headline inflation rate. This finding is similar with research
Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

done by Xiofen and Yongjio (2017), where the energy component such as fuel

and gas are more sensitive to the inflation rate in short and long run. Bloch et

al. (2006) managed to identify the existence of the relationship between

commodity price and inflation in Canada and Australia and concluded that

commodity price has positive relationship with the inflation. Jongwanish and

Park (2011) analyzed the inflation factor in Asia and found that the pass

through of global food and oil price to domestic price is limited due to various

obstacles that able to dilute the impact of commodity price increased to

inflation such as subsidies provided by the government by a lot of Asian

government. Their analysis also suggested that producers are reluctant to pass

the high cost to consumer especially in short term period. Cheung (2009),

found that since mid-1990s commodity prices have provided significant

impact to the inflation to the seven major industrialized countries evaluated.

Short term increased in commodity price can signal inflationary pressure as

early as the following quarter. The results also suggest that price movement of

the commodity may provide bigger signals for inflation in commodity-

exporting economies compared to commodity-importing economies.

Awokuse and Yang’s (2003) studied on five variables (money stock,

commodity price index, federal fund rate, consumer price index and industrial

production index) using monthly data from 1975 to 2001 for United States of

America indicate that commodity prices are useful in predicting future

inflation rate.

Kamrul and Ruhul (2011) comparing few commodities index with the

inflation trend and concluded that, the commodity price play an important role

in determining the inflation. In general Narayan et al. (2016) reveals that

Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

commodity price is flow through certain market before affecting the inflation

rate. Gurpreet and Gaurav (2006) could not agreed with the above findings

when they identify that the future market of traded commodity cannot predict

the future inflation even in the in the short term period, but instead of

commodity price, the volume of the commodity is a key features of the

inflation rate. John & Tassos (2010) looking at the commodity boom during

2006 – 2008 and found that, relationship between inflation rate and nominal

commodity prices is more complex and perhaps change over time. Fluctuation

of commodity price in the develop country will translate into higher inflation

rate volatility rapidly compared to advance country, Eichengreen (2002).

2.2 CRUDE PALM OIL

Malaysian Palm Oil Council reported that, Malaysia contributes almost 40%

of palm oil production in the world and higher portion is for foreign market

(export). 12% of the total oil and fat produced in the world belong to

Malaysian crude palm oil. 27% will be exported. Looking at the statistic it is

noted that crude palm oil is the one of the importance commodity that

represents the food industry for vegetable oil and fat in Malaysia.

To manage the inflation rate due to higher food price, Indonesian government

imposed the export tax to the crude palm oil product. In a way, the consumer

benefited through cheaper cooking oil because it is more profitable to sell the

cooking oil domestically instead of exporting. Unfortunately this corrective

measure not able to contribute positively to the inflation rate because cooking

oil contribution to the Indonesian CPI is only 1.4% from total inflation rate

calculation. In conclusion, the cooking oil price contribution to the total

inflation in Indonesia is very small. Besides that, another negative effect of

Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

this interference is that, the substitution of the cooking oil from coconut is

getting expensive and resulting in the closed down of factory that processing

the cooking oil from coconut. To sum up, modest inflation rate controlled with

imposing of the export tax is achieved but losses in term of economic

efficiency when industry from coconut product is closed down, Roberta

(2004). Another study on the palm oil sub-sector (oil base fatty acid)

contribution to inflation in Indonesia by Toni et al. (2014) revealed that the

contribution of sub-sector of palm oil to the inflation is relatively stable since

the pricing element does not have direct impact to the Indonesia inflation.

Inflation is affecting by the productivity rather than pricing.

Jongwanish and Park (2008) analyzed three specific commodities that are

mainly used in food industry (rice, wheat and palm oil) and the finding

revealed that palm oil contribute low portion of percentage to the consumer

prices compared to rice or wheat. This is due to the fact that inflation rate is

affecting by the demand of the palm oil instead of the pricing of palm oil

because palm oil is always can be substituted by alternative products (such as

coconut oil, vegetable oil and corn oil) compared to rice and wheat. So the

substitution of palm oil will cushion the impact of the price increased coming

from palm oil. Rice and wheat on the other hand are difficult to substitute with

other products. Therefore both finding revealed that crude palm oil price

impact to inflation is insignificant or very minimal compared to other factor.

It is good revelation from the study that the correct information will transform

into correct action.

2.3 CRUDE OIL

Crude oil represents the supply and demand of energy sectors in the country.
Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

It is very crucial in economic hierarchy for growth and development of the

country. Study of the monthly lag structure during January 1950 to June 2015

by Narayan et al. (2016) reveals lagged cross-market pricing transmission

occurs from gold to bonds to oil and finally to inflation rate. Commodity price

is flow through certain market before affecting the inflation rate. An empirical

analysis on global oil price relationship with inflation in Europe done by Edda

(2009), indicate that significant relationship between the variables selected and

oil price explain on average 19% of the variance in headline inflation. The

inflation will fall in Europe when ongoing sharp reduction in global oil price,

so we can see positive relationship between oil and inflation. Mansor and

Rusmawati (2012), found the evidence that the oil price have long term co-

integration with only the aggregate consumer price and food price indexes not

with other type of price index. In the short period, the oil price have

significant effect on the consumer price inflation rate such as food price

inflation, the housing and building rental, fuel and power price inflation as

well as the transportation and communication price inflation. In addition, the

short-run asymmetry in the oil price and food price inflation rate is also

evident but the study observed the neutrality in the medical care and health

price index to the oil price changes.

Harri et al. (2009) found clear evident that the effect of the changes in the

relationship between crude oil and corn prices in risk management strategies

for corn producers. The specific evidence from the analysis yields by

Jongwanis and Park (2008) is that external food and oil price increment

contribution to inflation rate is account less than 30% of Asia’s CPI inflation

rate, while excess aggregate demand on the other hand account for about 60%.
Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

So pricing is only represents 30% of the total inflation rate compared to

demand.

Baffes (2007) examined the effect of crude oil prices on the prices of 35

internationally traded primary commodities between 1960 until 2005. He

found that the pass-through of crude oil price changes to the overall non-

energy commodity index is 0.16. At a more disaggregated level, the fertilizer

index had the highest pass-through 0.33, followed by agriculture 0.17, and

metals 0.11. The implication is that if crude oil prices remain high for some

time, then the commodity price hike is likely to last much longer, at least for

food commodities. Indirectly the inflation rate will stay at the high side for

the longer period. John et al. (1999) found evidence that gold and oil prices

are move together during high inflation. No price movement for other

commodities detected when inflation is high. This may be linked by inflation

rate expectations due to the tendency that people will hold gold during high

inflation when the rising oil price, will raise the inflation rate. Indeed, crude

oil plays an importance role in directing the inflation rate whether to increase

or reduce.

2.4 NATURAL RUBBER - STANDARD MALAYSIAN RUBBER 20

(SMR20)

The launch of Industrial Master Plan by government has helped the rubber

industry to archive significant growth in terms of rubber usage and earnings

from export market. According to Lembaga Getah Malaysia, between 1990

and 2007 total rubber consumption by the industry increased by 200% from

190,000 metric tonnes to almost 600,000 metric tonnes. Compared to China,

India, Japan and United States of America, Malaysia is positioned at number

Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

fifth as higher consumer of natural rubber. The quantity and value of exported

rubber products has also increased significantly with the increased in rubber

usage. Based on export figure, earning from export of rubber product in 1990

is RM 2 billion and expanded by 400% to more than RM 10 billion in 2007.

Sadali (2013) found that natural rubber price have positive relationship with

inflation rate and crude oil price but show negative relationship with the

international trade (import and export). Kushankur and Debasish (2016) were

unable to conclude that the future price of rubber could be used by the farmer

to determinant its spot price because future price is rather a speculated pricing

that do not incurred actual rules of supply and demand. In other word, future

rubber price is speculative in nature therefore unable to determine the spot

price of rubber. Brajesh and Ajay (2009) looking at the hedging effectiveness

of the agricultural contract and realised 30-70% hedging effectiveness coming

from future agricultural contract compared to non-agricultural futures

effectiveness which is only 20%. Based on few testing done on the data

sampling, Qizhi (2012) come out with the main conclusion that there are

stable co integration relationship between prices of natural rubber future in

China and Japan. The influence of price of natural rubber futures in Japan to

China future market is greater than the influence of price of natural rubber

futures in China to the future market in Japan. Therefore changes of

commodity price in other country will also affecting the neighboring country.

2.5 GOLD

Gold being chosen as part of the variable because it represent a luxury item

kept by consumer as an asset or jewellery. For investor, gold will be a good

substitution for investment when return from share market or bond market is
Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

not attractive enough. A lot of studies have done on the relationship of gold

price and inflation rate. In case of India, Kumar (2016), indicate that gold

being used to hedge against inflation rate when rupee depreciated.

Depreciation of rupee will increase the inflation rate therefore hedging on gold

will cushion the impact of inflation rate. Similar to India, as highlighted by

Shahbaz et al. (2014) Pakistanis are also invested in gold to address inflation

rate both in short term and long term period. Adrangi et al. (2003) also share

the same finding. Van Hoang et al. (2016) on the other hand only agree that

the gold is best hedge in the short term period, not in the long term. In the

case of United State, the results is contrast, the gold could act as hedging tool

against the inflation rate only in the long term as found out by Wang et al

(2011). Worthington and Pahlavani (2007) pointed out that gold will be

hedging tools in United State of America when inflation rate is high not when

the inflation rate is low. In Japan, no significant finding that gold could be a

hedging tool during high or low inflation rate. Turkish also have the same

scenario with the United State of America, gold is suitable for hedging during

high inflation rate as concluded by Gülseven and Ekici (2016). Ghosh (2016)

found that, in United State of America, during high inflation rate, demand for

gold will be increased. Ocran and Biekpe (2007) examine the relationship

between gold and inflation relationship using VAR framework and their

casualty test suggest that average gold price contain valuable information

about interest rate, money, exchange rate and inflation. Therefore it would be

helpful for the authority to use this commodity price in formulating the

monetary policy. Besides hedging, Ranson and Wainright (2005) reported that

the past year price of gold act as better predictor of the current year inflation
 Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

rate compared to other factors. Tkacz (2007) also agreed with Ranson and

Wainright (2005) which he concluded that, if commodity such as gold treated

as commodity assets, the price of the commodities could be effective leading

indicator of inflation since their rate of return is embed inflation expectation.

Even though most of the study indicates the significant relationship of gold

price and inflation but Batten et al. (2014) commented that, the changes

inflation rate should not necessarily coming from the changes in gold price.

2.6 SUMMARY

As for conclusion, this chapter provides the clear view of previous research

that is related to this study. Finding from previous research related to the

variable used in this research being discussed, reviewed and cited. Most of the

researches have mixed result; some of it does not support others finding due to

nature of the problem or situation, demographic, time frame and sample of

data analyzed.

CHAPTER 3

RESEARCH METHODOLOGY

3.0 INTRODUCTION

This chapter contains the source of data, collection of data, independent and

dependent variables being used, theoretical framework, research design and

consideration of test for the data analysis, hypothesis statement as well as the

conclusion of the chapter three. A total of three selected independent variables

choose for this research comprises assessment rate, size of commercial industries and
Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

income level of the local population. Dependent variable is revenue of the local

authority. To achieve the ultimate objectives of the research, the researcher used

secondary data available from yearly financial statement from every local authority in

Perak.

3.1 DATA COLLECTION METHOD

This study is based on the quantitative data method using secondary data. It

can be found more quickly and cheaply than primary data. This research has

been carried out by using monthly trend from the period of January 2012 to

August 2017 (68 months). This study is aimed at identifying the variable that

impacts the revenue contribution of the local authority. Revenue of the local

authorities will become dependent variable while the assessment rate, size of

commercial industries and income level of the local population will be the

independent variables. In order to test the hypothesis of this study, E-views

software version 9.5 (student lite version) has been used to provide the

accurate result.

3.2 VARIABLES

A variable is something that can take on differing or varying values and the

values can differ at various times for the same person or objects. The

variables comprise of independent variables as well as dependent variable as

per discussion below:

3.2.1 One Dependent Variable

The dependant variable also known as criterion variable is the variable

of primary interest in the research paper and measure the effect of

independent variables. The problem statement is defined within the

Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

scope of the dependent variables. The dependent variable will act as a

primary interest to the researcher as it provides a measurement of the

effect from all four independent variables chosen. The dependent

variable is on this study is revenue / income of the local authority.

3.2.2 Three Independent Variables

Independent variable also known as predictor variable is one that

influences the dependent variable in positive or negative relationship.

When independent variables exist dependent variable will also exist.

Independent variables on this study are assessment rate, size of

commercial industries, and income level of local populations.

3.3 RESEARCH DESIGN

This research is engaged with the hypothesis testing of the factor to identify

the relationship between revenue of the local authority and selected

independent variables. In the research design, the research needs to identify

the research problem. Then set a clear objective for the research, specifying

samples and statistic required, developing the research plan, designing data

collection method, performing the research data collection, analysing the data

and interpreting the results and finally preparing the research report.

3.4 THEORETICAL FRAMEWORK

The theoretical framework discussed the inter-relationship among the

dependent and independent variables. A conceptual framework for this study

has been developed as shown in the below figure. It is derived from the
Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

objectives identified, research problem and literature review stated in the

previous chapter.

Figure 3.4: The Theoretical Framework Diagram

3.5 DATA ANALYSIS PROCEDURE

Software Eviews version 9.5 (student lite version) is used to analysed the data

collected from various site and sources data and information. The software is

very user friendly and very useful in data analysing because it is equipped

with data testing such as unit root test, normality test and serial correlation

test. It is also support the statistical analysis such as correlation analysis and

descriptive analysis as well as regression analysis. All test and statistical

analysis supported with graphic and tables. Beside the test and analysis, the

software could also identify data inconsistencies and data clearing. The

ultimate objective of using the software is to specify the relationship between

dependent and independent variables and the software have a good capability

to help in the research to archive the objective set. Eviews software is suit the

need and requirement of the finance student.

Analysing Forces to the Financial Contribution of Local Authority to Sustainable
Development: In Perak’s Local Authority

3.6 SUMMARY

The main objective this research is to determine relationship between revenue

of the local authorities against some assessment rate, size of commercial

industries and income level of local population in Perak’s local authorities.

This research also intended to examine whether positive or negative

relationship exist between the independent variables and dependent variables.

A monthly observation data is being used for each variable from January 2012

until August 2017 (68 samples for each variable).