The role of the financial sector in economic development: the Malaysian case |
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Authors: | Mansor H Ibrahim |
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Institution: | (1) Department of Economics, International Islamic University Malaysia, PO Box 10, 50728 Kuala Lumpur, Malaysia |
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Abstract: | In this paper, we empirically examine the finance-economic development relations for the case of Malaysia. Using a battery
of time series econometric techniques, we document robust evidence suggesting favorable output effects of financial market
development. Likewise, there are consistent results showing the adverse real effects of financial volatility. The results
of the development of financial intermediaries, however, are fragile. Moreover, the development of the financial markets hinges
crucially on macro-economic performance and financial stability of the country. However, the process of financial market development
is likely to be accompanied by financial volatility, leaving Malaysia with the trade-off between financial development and
financial volatility. Lastly, we obtain limited evidence indicating the complementarity between financial market and banking
sector developments.
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Keywords: | Financial development Economic development Malaysia VECM |
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