Financial Development and Economic growth in Malaysia : A Further Assessment

Aftermath East Asian Crisis, in Malaysian monetary authorities felt the need to develop a resilient and dynamic financial environment that supports to the growth of an economy. The paper entitled ⬠SFinancial Development and Economic growth in Malaysia, A Further Assessment⬠is first single country study of the long run relationship and short run causality between financial development and economic growth in Malaysia, despite over 28 years of financial development of financial liberalization since 1975. The methodologies used are Engle Granger bivariate Co-integration Test, Bound test proposed by Pesam and Granger Causality Test within Vector Error Correction Model. Nine financial development indicators have been selected to reflect the different impacts and development of the financial market on the Malaysian Economy. The study shows that impact of financial development on economic growth is country specific but financial sector evolution is more likely to stimulate and promote economic growth when monetary authorities adopt liberalized investment and openness policies, improve the size and regulations of the financial markets, ensures stock markets and macro economic stability.