FINANCIAL DEEPENING AND ECONOMIC DEVELOPMENT IN MALAYSIA

This paper examines the extent to which financial development contributes to output expansion in Malaysia, during the period 1966-2003. An augmented neoclassical growth framework is adopted to provide an evaluation of the impact of financial sector development on economic development. Using the recently developed ARDL bounds procedure, the results show that aggregate output and its determinants are cointegrated in the long run. The results suggest that financial development, private capital stocks and the labour force exert a positive impact on economic development whereas the accumulation of public capital appears to curtail output expansion in the long run.