The Effect of Financial Openness on Economic Growth of Malaysia

Yan, Siew Li (2020) The Effect of Financial Openness on Economic Growth of Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

In recent decades, financial openness has been one of the most important strategies for developing countries to promote economic growth as these countries lack of capital, lack of access to modern technology and other factors. Based on the past researches where most of them state that financial openness does contribute to economic growth of a country. This paper attempts to examine the effect of financial openness, trade openness and exchange rate on the economic growth of Malaysia. There are three specific objectives of the study which are to investigate the long run relationship between the independent variables and economic growth,to investigate the short run relationship between the independent variables and economic growth and to examine the causal relationship between independent variables and economic growth. Autoregressive distributed lag (ARDL) test is used in this study to test the cointegration and an error correction model based on ARDL approach using time series data for the period 1980 to 2018 in case of Malaysia. This paper reveals a positive impact of financial openness on economic growth of Malaysia. The finding also shows that exchange rate is the essential factor that enhances economic growth of Malaysia in the long run and short run.