Financial Sector Linkages and Real Economy Impacts in Malaysia: Evidence from a Machine Learning Approach

This study examines the role of financial services in Malaysia’s economy through a two-stage methodological framework. The first stage applies demand- and supply-driven input–output (IO) analysis to derive four indices: influence effect, induction effect, production-inducing effect, and supply-constraint effect. The second stage uses hybrid k-means hierarchical clustering to rank nonfinancial sectors based on their financial interdependence. Using Malaysia’s 2022 IO table and robustness checks from 2018 to 2021, results show that sectors like post and telecommunications; renting of machinery and equipment; wholesale and retail trade; and coke, refined petroleum, and nuclear fuel are highly influenced by financial services. Cluster analysis reveals that this key cluster is particularly sensitive to financial dynamics. Policy implications suggest that improving financial access, infrastructure, and resilience in this key cluster can accelerate Malaysia’s economic transformation. Aligning sectoral financing with IO linkages enables targeted interventions—such as credit guarantees and investment tools—to maximize multiplier effects and promote inclusive, sustainable growth.