Title: Financial development and economic growth in Malaysia: a nonlinear ARDL application

Authors: Chia-Guan Keh; Pei-Tha Gan; Yan-Teng Tan; Fatimah Salwa Binti Abd. Hadi; Norasibah Binti Abdul Jalil

Addresses: Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, 35900 Tanjung Malim, Perak, Malaysia ' Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, 35900 Tanjung Malim, Perak, Malaysia ' Department of Economics, Faculty of Business and Finance, Universiti Tunku Abdul Rahman, 31900 Kampar, Perak, Malaysia ' Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, 35900 Tanjung Malim, Perak, Malaysia ' Department of Economics, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, 35900 Tanjung Malim, Perak, Malaysia

Abstract: Determining the relationship between financial development and economic growth is important to make precise projections of economic growth. As most of these studies rely on a symmetric relationship, they can lead to misleading policy implications. To overcome this shortcoming, this paper uses a technique involving an asymmetric relationship. This paper examines the asymmetric relationship between financial development and economic growth in Malaysia from 1980 to 2017 using a nonlinear autoregressive distributed lags model. The banking sector and stock market development have been employed as indicators of financial development. The findings suggest that the asymmetric relationship between banking sector development and economic growth exists in the long-run. Banking sector development shows no asymmetric relationship with economic growth in the short-run, while stock market development does not present any asymmetric relationship with economic growth in the short and long-terms. The study infers that the banking sector development is an essential engine of growth promotion. Policymakers should consider banking and stock market development for better policy decision-making.

Keywords: asymmetry; economic growth; financial development; nonlinear ARDL; Malaysia.

DOI: 10.1504/IJSE.2022.122121

International Journal of Sustainable Economy, 2022 Vol.14 No.2, pp.197 - 215

Received: 16 Jun 2021
Accepted: 22 Sep 2021
Published online: 08 Apr 2022 *

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