Publication

This paper examines whether financial development leads to economic growth or vice versa in the small open economy of Malaysia. The authors argue that the results obtained from cross-sectional studies are not able to address this issue satisfactorily and highlight the importance of country-specific studies. Using time series data from 1960 to 2001, the authors conduct co-integration and various causality tests to assess the finance-growth link by taking savings, investment, trade and real interest rates into account. Contrary to the conventional findings, the results support the view that output growth causes financial depth in the long run.