Impact of Financial System on the Economic Growth in Malaysia

Ewe, Sze Cheng (2020) Impact of Financial System on the Economic Growth in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

This paper attempts to investigate the impact of financial system on the economic growth in Malaysia. This paper also examines the short run and long run relationship, as well as the causal relationship between the real gross domestic product, domestic credit to private sector, market capitalization and stock market traded value by employing annual data over the period 1983 to 2017. Towards these purposes, this paper employed unit root test, error correction model (ECM) techniques, Granger Causality test and other diagnostic tests. The long-run estimation results suggest that domestic credit to private sector and stock market traded value have positive and statistically significant impacts on the economic growth of Malaysia, while market capitalization is found negatively impacting the economic growth. Lastly, there is a unidirectional causality from market capitalization and stock market traded value to real GDP. There is also a unidirectional causality from market capitalization to domestic credit to private sector.