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Causality relationships between non-bank financial intermediaries and economic growth: the case of Malaysia

The question whether financial development influences economic growth has been examined in a large number of studies over the past four decades. Theoretically, the positive effects of financial development on economic growth are credited primarily to the functions it plays in the mobilization and al...

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Main Author: Islam, Mohd Aminul
Format: Conference or Workshop Item
Language:English
Published: 2010
Subjects:
HB131 Methodology.Mathematical economics. Quantitative methods
Online Access:http://irep.iium.edu.my/12891/1/IRIIE_Poster_2010.pdf
http://irep.iium.edu.my/12891/
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spelling my.iium.irep.128912012-01-12T06:24:19Z http://irep.iium.edu.my/12891/ Causality relationships between non-bank financial intermediaries and economic growth: the case of Malaysia Islam, Mohd Aminul HB131 Methodology.Mathematical economics. Quantitative methods The question whether financial development influences economic growth has been examined in a large number of studies over the past four decades. Theoretically, the positive effects of financial development on economic growth are credited primarily to the functions it plays in the mobilization and allocation of resources needed to undertake productive investment activities by various economic agents. Theoretical literature argued that the increased availability of financial instruments and institutions greatly reduces transaction and information costs in economy which in turn influences savings rate, investment decisions, undertaking of technological innovations and hence the economic growth. A great deal of empirical works has also tested the finance-growth hypothesis in a various settings using different indicators of financialdevelopment in cross-country or time series studies. The tests found mixed results. They are; no causal relationship, growth causes financial development, financial development causes growth, and bidirectional relationship. However, majority of the findings support that financial development plays the leading role in influencing economic growth. Surprisingly; most of the existing finance-growth literature uses either bank development or stock market development as proxy for financial development ignoring the development of non-bank financial intermediaries (NBFIs) as one of the significant components of the financial system development and its relationship with economic growth. In this paper, we made an attempt to fill in the gap by investigating the causal relationship between NBFIs and economic growth in Malaysia for the period 1974-2004. By employing ARDL bounds testing approach to cointegration and the Granger non causality test in a multivariate vector error correction mechanism (VECM), we found that nonbank financial intermediaries and economic growth are cointegrated when economic growth is treated as the dependent variable. The results show evidence of a long-run causality running from nonbank financial intermediaries to economic growth, but not the vice versa. 2010-01-27 Conference or Workshop Item REM application/pdf en http://irep.iium.edu.my/12891/1/IRIIE_Poster_2010.pdf Islam, Mohd Aminul (2010) Causality relationships between non-bank financial intermediaries and economic growth: the case of Malaysia. In: IIUM Research, Innovation & Invention Exhibition (IRIIE 2010), 26 - 27 January 2010, Kuala Lumpur. (Unpublished)
institution Universiti Islam Antarabangsa Malaysia
building IIUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider International Islamic University Malaysia
content_source IIUM Repository (IREP)
url_provider http://irep.iium.edu.my/
language English
topic HB131 Methodology.Mathematical economics. Quantitative methods
spellingShingle HB131 Methodology.Mathematical economics. Quantitative methods
Islam, Mohd Aminul
Causality relationships between non-bank financial intermediaries and economic growth: the case of Malaysia
description The question whether financial development influences economic growth has been examined in a large number of studies over the past four decades. Theoretically, the positive effects of financial development on economic growth are credited primarily to the functions it plays in the mobilization and allocation of resources needed to undertake productive investment activities by various economic agents. Theoretical literature argued that the increased availability of financial instruments and institutions greatly reduces transaction and information costs in economy which in turn influences savings rate, investment decisions, undertaking of technological innovations and hence the economic growth. A great deal of empirical works has also tested the finance-growth hypothesis in a various settings using different indicators of financialdevelopment in cross-country or time series studies. The tests found mixed results. They are; no causal relationship, growth causes financial development, financial development causes growth, and bidirectional relationship. However, majority of the findings support that financial development plays the leading role in influencing economic growth. Surprisingly; most of the existing finance-growth literature uses either bank development or stock market development as proxy for financial development ignoring the development of non-bank financial intermediaries (NBFIs) as one of the significant components of the financial system development and its relationship with economic growth. In this paper, we made an attempt to fill in the gap by investigating the causal relationship between NBFIs and economic growth in Malaysia for the period 1974-2004. By employing ARDL bounds testing approach to cointegration and the Granger non causality test in a multivariate vector error correction mechanism (VECM), we found that nonbank financial intermediaries and economic growth are cointegrated when economic growth is treated as the dependent variable. The results show evidence of a long-run causality running from nonbank financial intermediaries to economic growth, but not the vice versa.
format Conference or Workshop Item
author Islam, Mohd Aminul
author_facet Islam, Mohd Aminul
author_sort Islam, Mohd Aminul
title Causality relationships between non-bank financial intermediaries and economic growth: the case of Malaysia
title_short Causality relationships between non-bank financial intermediaries and economic growth: the case of Malaysia
title_full Causality relationships between non-bank financial intermediaries and economic growth: the case of Malaysia
title_fullStr Causality relationships between non-bank financial intermediaries and economic growth: the case of Malaysia
title_full_unstemmed Causality relationships between non-bank financial intermediaries and economic growth: the case of Malaysia
title_sort causality relationships between non-bank financial intermediaries and economic growth: the case of malaysia
publishDate 2010
url http://irep.iium.edu.my/12891/1/IRIIE_Poster_2010.pdf
http://irep.iium.edu.my/12891/
_version_ 1643606674116706304
score 13.211869

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