A Re-examination of the Impact of Credit on Economic Growth in Malaysia: Further Evidence from the Asymmetric ARDL Cointegration Technique
Keywords:
Asymmetric ARDL, Credit, Economic Growth, Financial development, nonlinearity
Abstract
Earlier studies on the relationship between credit and economic growth hardly unveil the asymmetric effects of domestic credit on economic growth. This paper attempt to cover the limitation of the earlier studies by re-investigating the asymmetric effect of domestic credit on economic growth in Malaysia over the period 1980-2019. Using a recently developed asymmetric ARDL methodology, the study found an evidence of a significant asymmetric effect of domestic credit on economic growth. A long run asymmetric cointegration between domestic credit and economic growth was established. The data also reveals that domestic credit tends to have a greater impact on economic growth. The policy implication of this study is that Malaysian policy makers need to enhance and further develop its credit policies to make them more efficient and flexible so as to realize a sustainable economic growth.
References
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Adeniyi, O., Oyinlola, A., Omisakin, O., & Egwaikhide, F. O. (2015). Financial development and economic growth in Nigeria: Evidence from threshold modelling. Economic Analysis and Policy, 47, 11-21.
Aghion, P., Dewatripont, M., & Rey, P. (1999). Competition, financial discipline and growth. The Review of Economic Studies, 66(4), 825-852.
Aluko, O. A., & Ibrahim, M. (2020). Institutions and the financial development–economic growth nexus in sub‐Saharan Africa. Economic Notes, e12163.
Amable, B., Chatelain, J. B., & Ralf, K. (2004). Credit rationing, profit accumulation and economic growth. Economics Letters, 85(3), 301-307.
Andersen, T. B., & Tarp, F. (2003). Financial liberalization, financial development and economic growth in LDCs. Journal of International Development: The Journal of the Development Studies Association, 15(2), 189-209.
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Ang, J. B. (2009). Financial development and the FDI-growth nexus: the Malaysian experience. Applied Economics, 41(13), 1595-1601.
Ang, J. B., & McKibbin, W. J. (2007). Financial liberalization, financial sector development and growth: evidence from Malaysia. Journal of development economics, 84(1), 215- 233.
Ansari, M. I. (2002). Impact of financial development, money, and public spending on Malaysian national income: an econometric study. Journal of Asian Economics, 13(1), 72- 93.
Anwar, S., & Sun, S. (2011). Financial development, foreign investment and economic growth in Malaysia. Journal of Asian Economics, 22(4), 335-342.
Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance?. Journal of Economic Growth, 20(2), 105-148.
Barra, C., & Ruggiero, N. (2020). The role of nonlinearity on the financial development– economic performance nexus: an econometric application to Italian banks. Empirical Economics, 1-30.
Beck, T. (2012). Finance and growth–lessons from the literature and the recent crisis. LSE Growth Commission, 3, 01-06.
Beck, T., & Levine, R. (2004). Stock markets, banks, and growth: Panel evidence. Journal of Banking & Finance, 28(3), 423-442.
Beck, T., Levine, R., & Loayza, N. (2000). Finance and the Sources of Growth. Journal of financial economics, 58(1-2), 261-300.
Belinga, T., Zhou, J., Doumbe-Doumbe, E., Gahe, Z. S. Y., & Koffi, Y. S. L. (2016). Causality relationship between bank credit and economic growth: Evidence from a time series analysis on a vector error correction model in Cameroon. Procedia–Social and Behavioral Sciences, 2(35), 664-671.
Botev, J., Égert, B., & Jawadi, F. (2019). The nonlinear relationship between economic growth and financial development: Evidence from developing, emerging and advanced economies. International Economics, 160, 3-13.
Bui, T. N. (2020). Domestic credit and economic growth in ASEAN countries: A nonlinear approach. International Transaction Journal of Engineering, Management, & Applied Sciences & Technologies, 11(2), 1-9.
Cecchetti, S. G., & Kharroubi, E. (2012). Reassessing the impact of finance on growth.
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Cournède, B., & Denk, O. (2015). Finance and economic growth in OECD and G20 countries. Available at SSRN 2649935.
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Dow, S. C., & Rodriguez-Fuentes, C. J. (1997). Regional finance: a survey. Regional studies, 31(9), 903-920.
Durusu-Ciftci, D., Ispir, M. S., & Yetkiner, H. (2017). Financial development and economic growth: Some theory and more evidence. Journal of Policy Modeling, 39(2), 290-306.
Fousekis, P., Katrakilidis, C., & Trachanas, E. (2016). Vertical price transmission in the US beef sector: Evidence from the nonlinear ARDL model. Economic Modelling, 52, 499-506.
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Ho, C., & Hung, C. H. (2009). Investor sentiment as conditioning information in asset pricing. Journal of Banking & Finance, 33(5), 892-903.
Huang, H. C., Lin, S. C., Kim, D. H., & Yeh, C. C. (2010). Inflation and the finance–growth nexus. Economic Modelling, 27(1), 229-236.
Ibrahim, M. H. (2007). The role of the financial sector in economic development: the Malaysian case. International Review of Economics, 54(4), 463-483.
Ibrahim, M. H. (2015). Oil and food prices in Malaysia: a nonlinear ARDL analysis. Agricultural and Food Economics, 3(1), 1-14.
Ibrahim, M., & Alagidede, P. (2018). Nonlinearities in financial development–economic growth nexus: Evidence from sub-Saharan Africa. Research in International Business and Finance, 46, 95-104.
Jedidia, K. B., Boujelbène, T., & Helali, K. (2014). Financial development and economic growth: New evidence from Tunisia. Journal of Policy Modeling, 36(5), 883-898.
Kaplan, M., Öztürk, İ., & Kalyoncu, H. (2011). Energy consumption and economic growth in Turkey: cointegration and causality analysis.
Katrakilidis, C., & Trachanas, E. (2012). What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration. Economic Modelling, 29(4), 1064- 1069.
King, R. G., & Levine, R. (1994). Capital fundamentalism, economic development, and economic growth. In Carnegie-Rochester Conference Series on Public Policy (Vol. 40, pp. 259-292). North-Holland.
Law, S. H., & Singh, N. (2014). Does too much finance harm economic growth?. Journal of Banking & Finance, 41, 36-44.
Lélé, S. M. (1991). Sustainable development: a critical review. World development, 19(6), 607-621.
Levine, R. (2005). Finance and growth: theory and evidence. Handbook of economic growth, 1, 865-934.
McKinnon, R. I. (1973). Money and capital in economic development. Brookings Institution Press.
Menyah, K., Nazlioglu, S., & Wolde-Rufael, Y. (2014). Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach. Economic Modelling, 37, 386-394.
Monadjemi, M. S., & Huh, H. (1998). Private and Government Investment: A Study of Three OECD Countries. International Economic Journal, 12(2), 93-104.
Narayan, P. K., & Narayan, S. (2013). The short-run relationship between the financial system and economic growth: New evidence from regional panels. International Review of Financial Analysis, 29, 70-78.
Rajan, R., & Zingales, L. (1998). Financial development and growth. American Economic Review, 88(3), 559-586.
Rioja, F., & Valev, N. (2004). Does one size fit all?: a reexamination of the finance and growth relationship. Journal of Development economics, 74(2), 429-447.
Romilly, P., Song, H., & Liu, X. (2001). Car ownership and use in Britain: a comparison of the empirical results of alternative cointegration estimation methods and forecasts. Applied economics, 33(14), 1803-1818.
Samargandi, N., & Kutan, A. M. (2016). Private credit spillovers and economic growth: Evidence from BRICS countries. Journal of International Financial Markets, Institutions and Money, 44, 56-84.
Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle- income countries. World development, 68, 66-81.
Schumpeter, J. A. (1934). The Theory of Economic Development (translation of second German edition by Redvers Opie). Cambridge, MA, Harvard University.
Shaw, E. (1973). Financial deepening in economic growth. Oxford University Press, NY.
Shen, C. H., & Lee, C. C. (2006). Same financial development yet different economic growth: why?. Journal of Money, Credit and Banking, 1907-1944.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in honor of Peter Schmidt (pp. 281-314). Springer, New York, NY.
Shittu, A. I. (2012). Financial intermediation and economic growth in Nigeria. British Journal of Arts and Social Sciences, 4(2), 164-179.
Timsina, N. (2014). Impact of bank credit on economic growth in Nepal (No. 22/2014, pp. 1- 23). Nepal Rastra Bank, Research Department.
Wang, Q., & Jiang, R. (2019). Is China's economic growth decoupled from carbon emissions?. Journal of Cleaner Production, 225, 1194-1208.
Wolde-Rufael, Y. (2009). Re-examining the financial development and economic growth nexus in Kenya. Economic Modelling, 26(6), 1140-1146.
Adeniyi, O., Oyinlola, A., Omisakin, O., & Egwaikhide, F. O. (2015). Financial development and economic growth in Nigeria: Evidence from threshold modelling. Economic Analysis and Policy, 47, 11-21.
Aghion, P., Dewatripont, M., & Rey, P. (1999). Competition, financial discipline and growth. The Review of Economic Studies, 66(4), 825-852.
Aluko, O. A., & Ibrahim, M. (2020). Institutions and the financial development–economic growth nexus in sub‐Saharan Africa. Economic Notes, e12163.
Amable, B., Chatelain, J. B., & Ralf, K. (2004). Credit rationing, profit accumulation and economic growth. Economics Letters, 85(3), 301-307.
Andersen, T. B., & Tarp, F. (2003). Financial liberalization, financial development and economic growth in LDCs. Journal of International Development: The Journal of the Development Studies Association, 15(2), 189-209.
Ang, J. B. (2008). What are the mechanisms linking financial development and economic growth in Malaysia?. Economic Modelling, 25(1), 38-53.
Ang, J. B. (2009). Financial development and the FDI-growth nexus: the Malaysian experience. Applied Economics, 41(13), 1595-1601.
Ang, J. B., & McKibbin, W. J. (2007). Financial liberalization, financial sector development and growth: evidence from Malaysia. Journal of development economics, 84(1), 215- 233.
Ansari, M. I. (2002). Impact of financial development, money, and public spending on Malaysian national income: an econometric study. Journal of Asian Economics, 13(1), 72- 93.
Anwar, S., & Sun, S. (2011). Financial development, foreign investment and economic growth in Malaysia. Journal of Asian Economics, 22(4), 335-342.
Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance?. Journal of Economic Growth, 20(2), 105-148.
Barra, C., & Ruggiero, N. (2020). The role of nonlinearity on the financial development– economic performance nexus: an econometric application to Italian banks. Empirical Economics, 1-30.
Beck, T. (2012). Finance and growth–lessons from the literature and the recent crisis. LSE Growth Commission, 3, 01-06.
Beck, T., & Levine, R. (2004). Stock markets, banks, and growth: Panel evidence. Journal of Banking & Finance, 28(3), 423-442.
Beck, T., Levine, R., & Loayza, N. (2000). Finance and the Sources of Growth. Journal of financial economics, 58(1-2), 261-300.
Belinga, T., Zhou, J., Doumbe-Doumbe, E., Gahe, Z. S. Y., & Koffi, Y. S. L. (2016). Causality relationship between bank credit and economic growth: Evidence from a time series analysis on a vector error correction model in Cameroon. Procedia–Social and Behavioral Sciences, 2(35), 664-671.
Botev, J., Égert, B., & Jawadi, F. (2019). The nonlinear relationship between economic growth and financial development: Evidence from developing, emerging and advanced economies. International Economics, 160, 3-13.
Bui, T. N. (2020). Domestic credit and economic growth in ASEAN countries: A nonlinear approach. International Transaction Journal of Engineering, Management, & Applied Sciences & Technologies, 11(2), 1-9.
Cecchetti, S. G., & Kharroubi, E. (2012). Reassessing the impact of finance on growth.
(July 1, 2012). BIS Working Paper No. 381, Available at SSRN: https://ssrn.com/abstract=2117753
Cournède, B., & Denk, O. (2015). Finance and economic growth in OECD and G20 countries. Available at SSRN 2649935.
De Gregorio, J., & Guidotti, P. E. (1995). Financial development and economic growth. World development, 23(3), 433-448.
Dow, S. C., & Rodriguez-Fuentes, C. J. (1997). Regional finance: a survey. Regional studies, 31(9), 903-920.
Durusu-Ciftci, D., Ispir, M. S., & Yetkiner, H. (2017). Financial development and economic growth: Some theory and more evidence. Journal of Policy Modeling, 39(2), 290-306.
Fousekis, P., Katrakilidis, C., & Trachanas, E. (2016). Vertical price transmission in the US beef sector: Evidence from the nonlinear ARDL model. Economic Modelling, 52, 499-506.
Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of political Economy, 98(5, Part 1), 1076-1107.
Hiemstra, C., & Jones, J. D. (1994). Testing for linear and nonlinear Granger causality in the stock price‐volume relation. The Journal of Finance, 49(5), 1639-1664.
Ho, C., & Hung, C. H. (2009). Investor sentiment as conditioning information in asset pricing. Journal of Banking & Finance, 33(5), 892-903.
Huang, H. C., Lin, S. C., Kim, D. H., & Yeh, C. C. (2010). Inflation and the finance–growth nexus. Economic Modelling, 27(1), 229-236.
Ibrahim, M. H. (2007). The role of the financial sector in economic development: the Malaysian case. International Review of Economics, 54(4), 463-483.
Ibrahim, M. H. (2015). Oil and food prices in Malaysia: a nonlinear ARDL analysis. Agricultural and Food Economics, 3(1), 1-14.
Ibrahim, M., & Alagidede, P. (2018). Nonlinearities in financial development–economic growth nexus: Evidence from sub-Saharan Africa. Research in International Business and Finance, 46, 95-104.
Jedidia, K. B., Boujelbène, T., & Helali, K. (2014). Financial development and economic growth: New evidence from Tunisia. Journal of Policy Modeling, 36(5), 883-898.
Kaplan, M., Öztürk, İ., & Kalyoncu, H. (2011). Energy consumption and economic growth in Turkey: cointegration and causality analysis.
Katrakilidis, C., & Trachanas, E. (2012). What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration. Economic Modelling, 29(4), 1064- 1069.
King, R. G., & Levine, R. (1994). Capital fundamentalism, economic development, and economic growth. In Carnegie-Rochester Conference Series on Public Policy (Vol. 40, pp. 259-292). North-Holland.
Law, S. H., & Singh, N. (2014). Does too much finance harm economic growth?. Journal of Banking & Finance, 41, 36-44.
Lélé, S. M. (1991). Sustainable development: a critical review. World development, 19(6), 607-621.
Levine, R. (2005). Finance and growth: theory and evidence. Handbook of economic growth, 1, 865-934.
McKinnon, R. I. (1973). Money and capital in economic development. Brookings Institution Press.
Menyah, K., Nazlioglu, S., & Wolde-Rufael, Y. (2014). Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach. Economic Modelling, 37, 386-394.
Monadjemi, M. S., & Huh, H. (1998). Private and Government Investment: A Study of Three OECD Countries. International Economic Journal, 12(2), 93-104.
Narayan, P. K., & Narayan, S. (2013). The short-run relationship between the financial system and economic growth: New evidence from regional panels. International Review of Financial Analysis, 29, 70-78.
Rajan, R., & Zingales, L. (1998). Financial development and growth. American Economic Review, 88(3), 559-586.
Rioja, F., & Valev, N. (2004). Does one size fit all?: a reexamination of the finance and growth relationship. Journal of Development economics, 74(2), 429-447.
Romilly, P., Song, H., & Liu, X. (2001). Car ownership and use in Britain: a comparison of the empirical results of alternative cointegration estimation methods and forecasts. Applied economics, 33(14), 1803-1818.
Samargandi, N., & Kutan, A. M. (2016). Private credit spillovers and economic growth: Evidence from BRICS countries. Journal of International Financial Markets, Institutions and Money, 44, 56-84.
Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle- income countries. World development, 68, 66-81.
Schumpeter, J. A. (1934). The Theory of Economic Development (translation of second German edition by Redvers Opie). Cambridge, MA, Harvard University.
Shaw, E. (1973). Financial deepening in economic growth. Oxford University Press, NY.
Shen, C. H., & Lee, C. C. (2006). Same financial development yet different economic growth: why?. Journal of Money, Credit and Banking, 1907-1944.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in honor of Peter Schmidt (pp. 281-314). Springer, New York, NY.
Shittu, A. I. (2012). Financial intermediation and economic growth in Nigeria. British Journal of Arts and Social Sciences, 4(2), 164-179.
Timsina, N. (2014). Impact of bank credit on economic growth in Nepal (No. 22/2014, pp. 1- 23). Nepal Rastra Bank, Research Department.
Wang, Q., & Jiang, R. (2019). Is China's economic growth decoupled from carbon emissions?. Journal of Cleaner Production, 225, 1194-1208.
Wolde-Rufael, Y. (2009). Re-examining the financial development and economic growth nexus in Kenya. Economic Modelling, 26(6), 1140-1146.
Published
2021-10-03
How to Cite
Abdullah, H., & El-Rasheed, S. (2021). A Re-examination of the Impact of Credit on Economic Growth in Malaysia: Further Evidence from the Asymmetric ARDL Cointegration Technique. Indonesian Economic Review, 3(2), 14-29. https://doi.org/10.53787/iconev.v3i2.9
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Articles
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