Do Financial Development and Inflation Influences Malaysia Economic Growth? An Application of Bound Test

t is generally thought that there is a negative long-term relationship between inflation and growth and a positive long-term relationship between financial development and growth. The existing empirical literature suggests that the finance-growth relationship is more robust than the inflation-growth relationship. This paper empirically examines the short and long run inflation led growth nexus as well as finance led growth nexus during the period ranging from 1985 up to 2010 by using time series technique known as ARDL approach. Besides inflation, we also included other significant variables such as real gross domestic investment, foreign direct investment inflow and openness ratio to border the scope of this research. The findings revealed that inflation led growth nexus is valid for Malaysia and contributed the highest growth towards Malaysia economy as compared to financial development and other selected macroeconomic determinants.