ABSTRACT
This book presents a case study of the role of financial intermediation in the process of economic development in Malaysia for the period 1960-2005. The study begins with a survey of both the theoretical and empirical literature on the relationship between financial development and economic growth. The analysis in Chapter 2 shows that most studies focus on either testing whether financial development plays a positive role in stimulating economic growth or examining the direction of causality between these two variables. Although limitations of the existing econometric techniques do not allow the issue of causality to be satisfactorily addressed, a large body of empirical evidence has overwhelmingly shown that financial development has a positive impact on economic growth. While this positive role of finance has become a stylized fact, little attention has been paid examining the mechanisms that link these two variables.
