Being a key socio-economic driver, palm oil industry plays a pivotal role in leading economic growth of Malaysia. The future of palm oil industry, however, depends on the financial development of the country. Access to finance facilities is critical for rural farmers and agro-enterprises to finance agricultural activities along the production chain including the purchase of material inputs, machinery, modern technology, transportation of equipment and outputs, and working capital management. The funding is also important for expansion of upstream activities such as investment in plantations abroad as well as for development of downstream activities such as food- and health-based segments. Therefore, an inclusive financial system is the backbone to building shared prosperity, as finance facilities helps agro-businesses to grow and prosper.

Nonetheless, the existing studies provide inconclusive evidence to support the ‘finance-led agricultural growth’ theory (among others, Devi 2012; Duy, 2012; Ibrahim and Bauer 2013; Sandip et al. 2015; Shahbaz et al. 2013; Chisasa and Makina 2015; Izhar and Tariq 2009; Olynyk, 2016). More importantly, empirical evidence is scarce on finance-palm oil growth relationship. In this light, we investigate to what extend the palm oil industry in Malaysia is influenced by financial development in short and long run from 1990 to 2016. To explore this relationship, we conduct several empirical approaches including unit root test, Johansen cointegration test, Error Correction Model test and Granger Causality test. We use four financial development indicators, as suggested by Cihak et al. (2012), including: financial depth (i.e. agricultural credit); access to financial services (i.e. bank branches); efficiency (i.e.bank lending-deposit spread); and financial stability (i.e. bank credit-to-deposit). Thus, our contribution is twofold: first, to the literature on finance development and agriculture growth determinants; and second, to the policy makers in providing an inclusive financial system to facilitate and bolster the growth of Malaysia agriculture in general, and for palm oil industry in particular.