James B. Ang

A Survey of Recent Developments in the Literature of Finance and Growth

This paper provides a survey of the recent progress in the literature of financial development and economic growth. The survey highlights that most empirical studies focus on either testing the role of financial development in stimulating economic growth or examining the direction of causality between these two variables. Although the positive role of finance on growth has become a stylized fact, there are some methodological reservations about the results from these empirical studies. Several key issues unresolved in the literature are highlighted. The paper also points to several directions for future research.

Can Second-Generation Endogenous Growth Models Explain the Productivity Trends and Knowledge Production in the Asian Miracle Economies?

Using data for six Asian miracle economies over the period from 1953 to 2006, this paper examines the extent to which growth has been driven by R&D and tests which second-generation endogenous growth model is most consistent with the data. The results give strong support to Schumpeterian growth theory but only limited support to semi-endogenous growth theory. Furthermore, it is shown that R&D has played a key role for growth in the Asian miracle economies.

Financial development and the FDI-growth nexus: the Malaysian experience

This article examines the FDI-growth nexus in the small open economy of Malaysia by controlling for the level of financial development. Financial development is proxied by a composite index, which is a summary measure of four financial development indicators. Using time-series data from 1965 to 2004, the results show that FDI and financial development are positively related to output in the long-run. The impact of FDI on output is enhanced through financial development. To supplement these findings, we assess the causal relationships between the variables using the recent causality tests available in the literature. The results indicate that economic growth causes FDI growth in the long-run, but no feedback relationship is observed.

Are saving and investment cointegrated? The case of Malaysia (1965-2003)

This article examines whether domestic saving rate leads to higher domestic investment rate in the case of Malaysia. We argue that the results obtained from cross-sectional studies are not able to address this issue satisfactorily and highlight the importance of individual country case studies. Using the recently developed autoregressive distributed lag bounds testing procedure, the results reveal a robust cointegrated relationship between domestic saving and investment rates during the period 1965 to 2003.

Catching Up to the Technology Frontier: The Dichotomy Between Innovation and Imitation

Using data for 55 developing and developed countries, this research examines the roles of technology transfer, research intensity, educational attainment and the ability to absorb foreign technology in explaining cross-country differences in productivity growth. The results show that innovation is an important factor for growth in OECD countries whereas growth in developing countries is driven by imitation. Furthermore the interaction between educational attainment and the distance to the frontier is a significant determinant of growth in the overall sample.

Are Financial Sector Policies Effective in Deepening the Malaysian Financial System

This paper provides an empirical assessment of the effects of financial sector policies on development of the financial system in Malaysia over the period 1959-2005. The technique of principal component analysis is used to construct a summary measure of interest rate policies in order to account for the joint influence of various interest rate controls imposed on the Malaysian financial system. The results show that economic development, interest rate controls and capital liquidity requirements positively affect the level of financial development. However, higher statutory reserve requirements and the presence of directed credit programs appear to be harmful for development of the Malaysian financial system. The results provide some support to the argument that some form of financial restraints may help promote financial development.

INTERNATIONAL R&D SPILLOVERS AND PRODUCTIVITY TRENDS IN THE ASIAN MIRACLE ECONOMIES

This paper examines the importance of the domestic R&D stock and foreign knowledge spillovers on total factor productivity for six Asian miracle economies over the period from 1955 to 2006. The productivity effects of international knowledge spillovers through the following channels are considered: imports, exports, inward foreign direct investment, patents, geographical proximity and no specific channel. The estimates show that knowledge has been transmitted through all the channels considered but that the import channel and the no-weighting channel have probably been the most important ones for the Asian miracle economies.

Does foreign aid promote growth? Exploring the role of financial liberalization

This paper examines the impact of foreign aid on the process of economic development in India by controlling for the degree of financial liberalization. A composite index is constructed using the method of principal component analysis to capture the joint influence of various financial sector policies. The results show that while foreign aid exerts a direct negative influence on output expansion, its indirect effect via financial liberalization is positive. Therefore, an important implication of the findings in this paper is that adequate liberalization in the financial system of the host country is a crucial requirement for effective foreign aid. Our results are robust to a number of control variables and estimation techniques.

Household Saving Behaviour in an Extended Life Cycle Model: A Comparative Study of China and India

Abstract This paper examines the determinants of household saving in China and India over the last few decades using the life cycle model, with appropriate modifications to account for the expected benefits of pension saving. Consistent with the predictions made in the life cycle model, higher income growth promotes more household saving, and higher age dependency does the opposite. An increase in the inflation rate appears to encourage household saving. Interestingly, the evidence suggests that an increase in expected pension benefits tends to discourage household saving in China in the long run, but the reverse is found in India.

Do public investment and FDI crowd in or crowd out private domestic investment in Malaysia

Motivated by the concern of a persistent decline in total investment in Malaysia during the post-crisis era, this article examines the long-run relationship between private domestic investment (PDI), public investment and foreign direct investment (FDI) in Malaysia. Using multivariate cointegration techniques, the results indicate a fairly robust cointegrated relationship between these variables during the period 1960 to 2003. Both public investment and FDI are found to be complementary to, rather than competing with, PDI.