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Are Financial Sector Policies Effective In Deepening The Malaysian Financial System?

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  • James B. Ang

Abstract

This paper provides an empirical assessment of the effects of financial sector policies on development of the financial system in Malaysia over the period 1959-2005. The technique of principal component analysis is used to construct a summary measure of interest rate policies in order to account for the joint influence of various interest rate controls imposed on the Malaysian financial system. The results show that economic development, interest rate controls and capital liquidity requirements positively affect the level of financial development. However, higher statutory reserve requirements and the presence of directed credit programs appear to be harmful for development of the Malaysian financial system. The results provide some support to the argument that some form of financial restraints may help promote financial development.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2007/0207financeang.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 02-07.

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Length: 17 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mos:moswps:2007-02

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Keywords: Financial development; financial liberalization; Malaysia.;

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References

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  1. James Ang, 2009. "Financial development and the FDI-growth nexus: the Malaysian experience," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1595-1601.
  2. Philip Arestis & Panicos O. Demetriades & Bassam Fattouh & Kostas Mouratidis, 2002. "The Impact of Financial Liberalisation Policies on Financial Development Evidence from Developing Economies," Discussion Papers in Economics 02/1, Department of Economics, University of Leicester.
  3. Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001) 95/13, Department of Economics, Keele University.
  4. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-99, May.
  5. McKinnon, Ronald I & Pill, Huw, 1997. "Credible Economic Liberalizations and Overborrowing," American Economic Review, American Economic Association, vol. 87(2), pages 189-93, May.
  6. Shandre M. Thangavelu & Ang Beng Jiunn & James, 2004. "Financial development and economic growth in Australia: An empirical analysis," Empirical Economics, Springer, vol. 29(2), pages 247-260, 05.
  7. James B. Ang & Warwick J. McKibbin, 2005. "Financial Liberalization, Financial Sector Development And Growth: Evidence From Malaysia," CAMA Working Papers 2005-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  8. Demetriades, Panicos O. & Luintel, Kul B., 2001. "Financial restraints in the South Korean miracle," Journal of Development Economics, Elsevier, vol. 64(2), pages 459-479, April.
  9. Gennotte, Gerard & Pyle, David, 1991. "Capital controls and bank risk," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 805-824, September.
  10. Panicos O. Demetriades & Kul B. Luintel, 1997. "The Direct Costs Of Financial Repression: Evidence From India," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 311-320, May.
  11. Delano Villanueva & Abbas Mirakhor, 1990. "Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 37(3), pages 509-536, September.
  12. Bewley, R. A., 1979. "The direct estimation of the equilibrium response in a linear dynamic model," Economics Letters, Elsevier, vol. 3(4), pages 357-361.
  13. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
  14. Inder, Brett, 1993. "Estimating long-run relationships in economics : A comparison of different approaches," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 53-68.
  15. Kim, Daesik & Santomero, Anthony M, 1988. " Risk in Banking and Capital Regulation," Journal of Finance, American Finance Association, vol. 43(5), pages 1219-33, December.
  16. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  17. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
  18. Schwarz, Anita M., 1992. "How effective are directed credit policies in the United States? A literature survey," Policy Research Working Paper Series 1019, The World Bank.
  19. James Ang, 2007. "Are saving and investment cointegrated? The case of Malaysia (1965-2003)," Applied Economics, Taylor & Francis Journals, vol. 39(17), pages 2167-2174.
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Citations

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Cited by:
  1. Delphine Lahet, 2009. "Les Banques Étrangères En Asie Du Sud-Est : Le Rôle Des Local Claims," Working Papers hal-00616577, HAL.
  2. James Ang, 2008. "Private Investment And Financial Sector Policies In Developing Countries," Monash Economics Working Papers 07/08, Monash University, Department of Economics.
  3. Ang, James, 2009. "Financial Liberalization Or Repression?," MPRA Paper 14497, University Library of Munich, Germany.
  4. Anwar, Sajid & Sun, Sizhong, 2011. "Financial development, foreign investment and economic growth in Malaysia," Journal of Asian Economics, Elsevier, vol. 22(4), pages 335-342, August.
  5. James B. Ang, 2009. "Financial Liberalization And The Aid Growth Relationship In India," Development Research Unit Working Paper Series 10-09, Monash University, Department of Economics.
  6. Ang, James B., 2009. "Private Investment and Financial Sector Policies in India and Malaysia," World Development, Elsevier, vol. 37(7), pages 1261-1273, July.
  7. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
  8. repec:usm:journl:aamjaf00811__93-113 is not listed on IDEAS
  9. Ang, James, 2009. "Growth Volatility and Financial Repression: Time Series Evidence from India," MPRA Paper 14412, University Library of Munich, Germany.
  10. Siti Muliana Samsi & Zarinah Yusof & Kee-Cheok Cheong, 2012. "Linkages Between the Real Sector and the Financial Sector: The Case of Malaysia," Asian Academy of Management Journal of Accounting and Finance, Penerbit Universiti Sains Malaysia, vol. 8(Supp. 1), pages 93-113.

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