Financial development and economic growth in Malaysia / James B. Ang.

Includes bibliographical references (pages [173]-190) and index.

INTRODUCTION -- 1.1 INTRODUCTION -- 1.2 PURPOSE AND CONTRIBUTION OF THIS STUDY -- 1.3 WHY MALAYSIA? -- 1.4 DEFINITION OF KEY FINANCIAL TERMS -- 1.5 ORGANIZATION OF THE BOOK -- FINANCE AND DEVELOPMENT: A SURVEY OF LITERATURE -- 2.1 INTRODUCTION -- 2.2 THE EMERGENCE OF FINANCIAL MARKETS AND INTERMEDIARIES -- 2.3 THE FUNCTIONS OF FINANCIAL SYSTEMS -- 2.4 THE EVOLUTION OF THE THINKING ON FINANCE AND GROWTH -- 2.5 MODELS OF FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH -- 2.5.1 Keynesian model -- 2.5.2 Neoclassical model -- 2.5.3 The McKinnon-Shaw model -- 2.5.4 Endogenous finance and growth models -- 2.6 EMPIRICAL EVIDENCE -- 2.6.1 Pure cross-country evidence -- 2.6.2 Limitations of pure cross-country studies -- 2.6.3 Time series studies -- 2.6.4 Limitations of time series studies -- 2.6.5 Panel studies -- 2.7 KEY ISSUES -- 2.8 CONCLUSIONS -- THE MALAYSIAN ECONOMY AND ITS FINANCIAL SYSTEM.

3.1 INTRODUCTION -- 3.2 THE POLICY FRAMEWORK: AN OVERVIEW -- 3.3 THE MALAYSIAN GROWTH EXPERIENCE -- 3.3.1 An overview of economic growth -- 3.3.2 Comparison with other Asian countries -- 3.3.3 Structural change of the economy -- 3.4 FINANCIAL SECTOR DEVELOPMENT -- 3.5 FINANCIAL SECTOR REFORMS -- 3.6 FINANCIAL STRUCTURE -- 3.6.1 Banking system -- 3.6.2 Non-bank financial intermediaries -- 3.6.3 Money and foreign exchange markets -- 3.6.4 Capital markets -- 3.6.5 Derivatives markets -- 3.6.6 Offshore financial market -- 3.6.7 Bank-based or market-based? -- 3.7 TRENDS AND PATTERNS OF SAVINGS -- 3.7.1 The role of government -- 3.7.2 Composition of saving -- 3.8 TRENDS AND PATTERNS OF INVESTMENT -- 3.8.1 Policy context and investment patterns -- 3.8.2 Composition of investment -- 3.8.3 Foreign direct investment -- 3.9 THE SAVING-INVESTMENT DYNAMICS -- 3.10 CONCLUSIONS -- DATA, VARIABLE CONSTRUCTION AND ESTIMATION METHODOLOGY.

4.1 INTRODUCTION -- 4.2 SOURCES OF DATA -- 4.3 CONSTRUCTION OF VARIABLES -- 4.4 ECONOMETRIC METHODOLOGY -- 4.4.1 General issues in modeling time series data -- 4.4.2 Traditional cointegration tests and their limitations -- 4.4.3 Alternative cointegration test and its advantages -- 4.4.4 The testing procedure -- 4.4.5 Unit root tests -- 4.4.6 The data generation process -- 4.4.7 Cointegration tests -- 4.4.8 The long-run model -- 4.4.9 Short-run dynamic model -- 4.4.10 General-to-specific modeling technique -- 4.5 CONCLUSIONS -- FINANCIAL DEEPENING AND ITS DETERMINANTS -- 5.1 INTRODUCTION -- 5.2 ANALYTICAL FRAMEWORK -- 5.2.1 Financial deepening and economic development -- 5.2.2 Financial sector policies -- 5.2.3 Model specification -- 5.3 DATA -- 5.4 RESULTS -- 5.5 CONCLUSION -- THE PATTERNS AND DETERMINANTS OF PRIVATE SAVING -- 6.1 INTRODUCTION -- 6.2 ANALYTICAL FRAMEWORK -- 6.2.1 The "stripped down" LCM -- 6.2.2 Modifications and extensions -- 6.2.3 The model -- 6.3 RESULTS -- 6.4 CONCLUSION -- THE DETERMINANTS OF PRIVATE INVESTMENT.

7.1 INTRODUCTION -- 7.2 A MODEL OF PRIVATE INVESTMENT -- 7.2.1 Neoclassical model -- 7.2.2 Modified neoclassical model -- 7.2.3 FDI flows and domestic investment -- 7.2.4 Model specification -- 7.2.5 Dynamic specification -- 7.3 RESULTS -- 7.4 CONCLUSION -- THE SAVING AND INVESTMENT NEXUS -- 8.1 INTRODUCTION -- 8.2 CONCEPTUAL ISSUES -- 8.3 AN INTERTEMPORAL MODEL OF CURRENT ACCOUNT -- 8.4 MODEL AND DATA -- 8.4.1 Model specification -- 8.4.2 Time series plots of variables -- 8.5 EMPIRICAL FINDINGS -- 8.6 CONCLUSION -- FINANCIAL INTERMEDIATION AND ECONOMIC GROWTH -- 9.1 INTRODUCTION -- 9.2 GROWTH ACCOUNTING -- 9.3 EMPIRICAL SPECIFICATION -- 9.4 RESULTS -- 9.5 CONCLUSION -- CONCLUSION -- 10.1 INTRODUCTION -- 10.2 KEY FINDINGS -- 10.3 POLICY IMPLICATIONS AND DIRECTIONS FOR FUTURE RESEARCH -- APPENDICES -- Appendix 1: Key events in the financial sector of Malaysia, 1959--2005 -- Appendix 2: Sources of data -- Appendix 3: Results of the unit root tests -- Appendix 4: Cointegration tests and lag length selection -- Appendix 5: Critical values for the ARDL bounds tests.

This book is concerned with the role of financial intermediation in economic development and growth in the context of Malaysia. Using an analytical framework, the author investigates the Malaysian economy from 1960 onwards to examine how far financial development has progressed in the course of economic development, and whether it has been instrumental in promoting economic growth. A significant improvement in the Malaysian financial system, coupled with rapid economic growth and a rich history of financial sector reforms, makes Malaysia an interesting case study for this subject. The author shows that some government interventions seem to have impacted negatively on economic growth, whereas repressionist financial policies such as interest rate controls, high reserve requirements and directed credit programmes seem to have contributed positively to financial development. The analysis concludes that financial development leads to higher output growth via promoting private saving and private investment. Shedding light on the evolutionary role of financial system and the interacting mechanisms between financial development and economic growth, this book will be of interest to those interested in economic and financial development, financial liberalization, saving behaviour and investment analysis and Asian Studies.