Malaysian Stock Market: A Spur to the Country’s Economic Growth

Abstract

This study empirically investigates the impact of stock market on Malaysian economic growth using a vector autoregressive (VAR) estimation technique and impulse response function (IRF) over the period of 1988 through 2012. The study is motivated by empirical findings that a well-functioning stock market plays an important role in enhancing economic growth in the developed countries. We find that Malaysian stock market exhibits a positive impact on economic growth. However, we find that the positive impact lasts only for a short period. Specifically, the effect only appears in the first year after the change in market size occurs. In the second year, the effect then starts to alleviate and completely diminishes after several years. The findings provide clear implications that the positive impact of stock market size changes should be fully utilized immediately once it is realized because the impact will not last long.