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Theoretical and Applied Economics
No. 2 / 2021 (627), Summer

The effect of financial liberalization on Malaysian economic growth

University of Constantine 2, Algeria

Abstract. This study aims at identifying the impact of financial liberalization on Malaysian Economic Growth during 1990-2019. So we selected the most important factors and financial determinants that represent the financial liberalization, which in turn impacts economic growth. These variables are represented in the rate of inflation and Kaopen Index, foreign direct investment inflows, trade openness and financial deepening, and all serve as means that reflect financial liberalization. The ADF (Dickey-Fuller) unit root test revealed that all of the time series do not contain a unit root. Especially at the first Defference, the Engle and Granger cointegration test demonstrated that there is a correlation between time series, therefore the Model was evaluated through the fully modified least-Squares Method (FMOLS), The Method demonstrated that all study variables have statistical significance and that financial liberalization has a positive impact on Malaysian Economic growth during the study period. Moreover, Granger's causality test showed that in the short term, there is no impact of the variables of the financial liberalization on the economic growth.

Keywords: economic growth, financial liberalization, foreign direct investment inflows, trade openness, Fully Modified Least-Squares Method (FMOLS method).

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