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Financial Growth and Economic Development: Evidence from Malaysia

Syamsul Ikram Mohd Noor and Norimah Rambeli@Ramli

International Journal of Academic Research in Business and Social Sciences, 2017, vol. 7, issue 10, 457-466

Abstract: The purpose of this study is to test the validity of Robinson's growth argument that supports economic growth affecting finance using a series of annual data from Malaysia. The key to this debate is whether there is a growth response led by finance or financial response led by the growth between the two variables. As a result, it can provide different fundamental implications. Therefore, it is very important to determine the reasons for these financial growth relationships for every economy. The previous survey in research in the Malaysian case produces mixed results. Therefore, this study is expected to update existing evidence using the latest data and provide further insights on the relationship between finance and growth in Malaysia. This study uses domestic credit as a proxy for financial development as opposed to real per capita GDP ( a proxy for economic growth). Using the Bounds ARDL test, revealed that the Economic Development granger cause financial Development and not the other way around. This is consistent with previous studies. The development of the financial sector is a product inspired by economic growth. In accordance with this development, we recommend that appropriate policies be implemented to promote economic development.

Keywords: Financial Growth; Autoregressive Distributed Lag; Economic development; Malaysia; Domestic credit (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:hur:ijarbs:v:7:y:2017:i:10:p:457-466