Journal
JOURNAL OF DEVELOPMENT ECONOMICS
Volume 84, Issue 1, Pages 215-233Publisher
ELSEVIER
DOI: 10.1016/j.jdeveco.2006.11.006
Keywords
financial development; financial liberalization; Malaysia
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The objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of Malaysia. Using time series data from 1960 to 2001, we conduct cointegration and causality tests to assess the finance-growth link by taking the real interest rate and financial repression into account. The empirical evidence suggests that financial liberalization, through removing the repressionist policies, has a favorable effect in stimulating financial sector development. Financial depth and economic development are positively related; but contrary to the conventional findings, our results support Robinson's view that output growth leads to higher financial depth in the long-run. (C) 2007 Elsevier B.V. All rights reserved.
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