Does Financial Development Moderate the Effects on Growth Volatility? The Experience of Malaysia

Chor Foon Tang and Salah Abosedra
Additional contact information
Salah Abosedra: Salah Abosedra is at the College of Business Administration, American University in the Emirates, Dubai, UAE.

Margin: The Journal of Applied Economic Research, 2020, vol. 14, issue 4, 361-381

Abstract: This article examines whether financial development can moderate the effects of growth volatility in the Malaysian economy. Using annual data from 1972 to 2018, we noted the existence of a strong link between growth volatility and financial development over the long-run. The findings also indicate that financial development alleviates the incidence of growth volatility over the long-run. Our basic estimated model shows further that trade openness has a significant positive impact on growth volatility, while inflation volatility, inward FDI and financial development have a significant negative impact on growth volatility in Malaysia. This model is extended to count the moderating effects of financial development on the impact of inflation volatility, trade openness and FDI on growth volatility in Malaysia. The results show that financial development not only has a direct impact on growth volatility but it also moderates the impacts of inflation volatility, trade openness and FDI on growth volatility. Therefore, our results extend established findings on the finance-growth volatility nexus for the Malaysian economy. More importantly, it shows additional possible benefits from financial development for growth stability. Furthermore, we note that ignoring such benefits may have contributed to the conflicting empirical results reported in the finance-growth volatility literature. We offer some specific policy implications based on such empirical results that are beneficial to the Malaysian economy and other countries in the region. JEL Classification: C32, E32, O16

Keywords: Financial Development; Growth Volatility; Inflation Volatility; Trade Openness; Malaysian Economy (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/0973801020953400 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:mareco:v:14:y:2020:i:4:p:361-381

DOI: 10.1177/0973801020953400

Access Statistics for this article

More articles in Margin: The Journal of Applied Economic Research from National Council of Applied Economic Research
Bibliographic data for series maintained by SAGE Publications ().