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Financial Development and Economic Growth in Malaysia: The Stock Market Perspective

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Author Info

  • Chee Keong Choong

    (Universiti Tunku Abdul Rahman Malaysia)

  • Zulkornain Yusop

    (Universiti Putra Malaysia)

  • Siong Hook Law

    (Universiti Putra Malaysia)

  • Venus Liew Khim Sen

    (Universiti Putra Malaysia)

Abstract

Understanding the causal relationship between financial development and economic growth is important in enhancing the economy of a nation. Using the autoregressive distributed lag (ARDL) bounds test approach, this study finds that stock market development is cointegrated with economic growth in the context of Malaysia. Moreover, this test also suggests that stock market development has a significant positive long-run impact on economic growth. Granger-causality test based on vector error correction model (VECM) further reveals that stock market development Granger-causes economic growth. Hence, this study provides robust empirical evidence in favor of finance-led growth hypothesis for the Malaysian economy.

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File URL: http://128.118.178.162/eps/mac/papers/0307/0307010.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0307010.

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Date of creation: 23 Jul 2003
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Handle: RePEc:wpa:wuwpma:0307010

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Web page: http://128.118.178.162

Related research

Keywords: Financial development; economic growth; cointegration; causality; stock market;

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References

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  1. A. Senhadji Semlali & Mohsin S. Khan, 2000. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Working Papers 00/110, International Monetary Fund.
  2. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  3. Luintel, Kul B. & Khan, Mosahid, 1999. "A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR," Journal of Development Economics, Elsevier, vol. 60(2), pages 381-405, December.
  4. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  5. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  6. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  7. Ross Levine & Sara Zervos, . "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
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Cited by:
  1. Abu Nurudeen, 2009. "Does Stock Market Development Raise Economic Growth? Evidence from Nigeria," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 1(1), pages 015-026, December.
  2. Tang, Hong Peng & Habibullah, Muzafar Shah & Puah, Chin-Hong, 2007. "Stock market and economic growth in selected Asian countries," MPRA Paper 37649, University Library of Munich, Germany.

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