The velocity of money andper capitaincome in developing economies: Malaysia and Singapore

Abstract

If the velocity of money is a negative function of per capita income, the capacity of money creating institutions to finance development increases. However, empirical support for this proposition has been weak. Thus, this paper investigates velocity's behaviour in the economy of West Malaysia and Singapore from 1951 to 1966. Results show velocity to be primarily a positive function of the number of bank offices and a negative function of per capita real GDP. The paper concludes that closer observation of underdeveloped economies in which velocity has paradoxically risen with per capita income, might reveal similar institutional changes which have overwhelmed the inverse relation between per capita income and velocity.

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