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Jurnal Ekonomi Malaysia

52 (1) 2018 15 – 30

Nonlinear Relationship between Financial Development and Economic Growth: Evidence from Post Global Financial Crisis Panel Data
Hubungan Tidak Linear antara Pembangunan Kewangan dengan Pertumbuhan Ekonomi: Bukti Data Panel Selepas Krisis Kewangan Global

Fakulti Ekonomi dan Pengurusan
Universiti Kebangsaan Malaysia
43600 UKM Bangi Selangor
MALAYSIA

Faculty of Accounting and Management
Universiti Tunku Abdul Rahman
UTAR Sungai Long Campus
Jalan Sungai Long 9
43000 Kajang Selangor

elyanabila@utar.edu.my

Fakulti Ekonomi dan Pengurusan
Universiti Kebangsaan Malaysia
43600 UKM Bangi Selangor
MALAYSIA

ahassan@ukm.edu.my

Fakulti Ekonomi dan Pengurusan
Universiti Kebangsaan Malaysia
43600 UKM Bangi Selangor
MALAYSIA

tamat@ukm.edu.my

Faculty of Management and Muamalah
Kolej Universiti Islam Antarabangsa Selangor (KUIS)
Bandar Seri Putra
43000 Kajang Selangor
MALAYSIA

norhakimah@kuis.edu.my

Abstract

Existing studies find that the nonlinear relationship between financial development and economic growth is inverted U-shaped or there exist Kuznets curve, where financial development harm growth after surpassed the threshold point. The objective of this study is to re-estimate the existing relationship between financial development and economic growth for 65 developing countries for the period post 2007-2008 Global Financial Crisis starts from 2009-2015 using Generalized Method-of-Moment (GMM). Three financial development indicators namely, domestic credit to private sector (DCPS), liquid liabilities (LL) and private credit to deposit money (PCDM) are used in this study. However, our findings are contrary to the previous study. Interestingly, our result shows that the nonlinear relationship between financial development and economic growth is U-shaped for all indicators. In other words, financial development accelerated economic growth after reaching the turning point. The results of U-test of Lind and Mehlum (2010) confirms that the U-shaped relationship exist. It shows that the higher financial development enhance the performance of economic growth. Thus, our results challenge the previous findings and recommend for policy review.

Keywords

economic growth; Financial development; nonlinear; U-shaped

Author’s Acknowledgement

This paper was supported financially by the Ministry of Higher Education, Malaysia through the International Islamic University College Selangor under the Fundamental Research Grant Scheme (FRGS) grant: FRGS/2/2014/SS05/KUIS/03/1.

http://dx.doi.org/10.17576/JEM-2018-5201-2
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Abdul Bahri, , Mohd Nor, , Sarmidi, , & Haji Mohd Nor, (2018). Nonlinear Relationship between Financial Development and Economic Growth: Evidence from Post Global Financial Crisis Panel Data. Jurnal Ekonomi Malaysia, 52(1), 15–30. http://dx.doi.org/10.17576/JEM-2018-5201-2

@article{abdulbahri2018nonlinear,
  title={Nonlinear Relationship between Financial Development and Economic Growth: Evidence from Post Global Financial Crisis Panel Data},
  author={Abdul Bahri, Elya Nabila and Mohd Nor, Abu Hassan Shaari and Sarmidi, Tamat and Haji Mohd Nor, Nor Hakimah},
  journal={Jurnal Ekonomi Malaysia},
  volume={52},
  number={1},
  pages={15—30},
 

year={2018},
}

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