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Does finance lead or lag growth? evidence from Malaysia

Author

Listed:
  • Salleh, Fadzlullah
  • Masih, Mansur

Abstract

Finance has played a significant role in the process of economic growth. There have been many attempts to shed light on the direction of Granger-causality between finance and growth for helping the policy makers. But the issue of direction of Granger-causality has remained unresolved. This paper is an attempt to revisit that issue as to whether finance leads or lags growth in a developing economy. The standard time series techniques are applied for the analysis. Malaysia is taken as a case study. The findings tend to indicate that finance lags growth at least in the context of Malaysia during the period under review. This finding has a strong policy implication in that the Government has to take a pro-active role to enhance the growth of the economy in order to develop the financial sector..

Suggested Citation

  • Salleh, Fadzlullah & Masih, Mansur, 2016. "Does finance lead or lag growth? evidence from Malaysia," MPRA Paper 102493, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:102493
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    References listed on IDEAS

    as
    1. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    2. Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 195-209.
    3. Mansur Masih & Ali Al-Elg & Haider Madani, 2009. "Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1691-1699.
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    More about this item

    Keywords

    Finance; growth; lead-lag; Malaysia;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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