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Finance-Growth-Crisis Nexus in Asian Emerging Economies: Evidence from VECM and ARDL Assessment

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  • Takashi Fukuda

    (3-35-13 Kengun, Kimamoto-shi, Kumamoto-ken 862-0911, Japan)

  • Jauhari Dahalan

    (College of Business, UniversitiUtara Malaysia, 06010 UUM Sintok, Kedah, Malaysia)

Abstract

This paper examines the causal relationship between financial development, economic growth and financial crisis in the five Asian emerging economies (India, Indonesia, South Korea, Malaysia and Thailand) during the period 1982 to 2007. All of these countries are known as emerging economies with well known financial crisis episodes (i.e., India's 1991 crisis and the Asian 1997 crisis). The summary indicators of financial development, financial crisis and financial repression are constructed through the principal component approach. The cointegration and Granger causality analysis are conducted by using two techniques of vector error correction model (VECM) and autoregressive distributed lag (ARDL). The main findings are: (1) the direction of the finance-growth nexus is country-specific; (2) deeper financial development can lead to financial crisis; and (3) financial crisis has a negative impact on economic growth (except Korea for the last two). On policy implication, we ascertain that the growth effect of financial deepening should be appraised with the view that financial deepening could gravitate toward financial crisis.

Suggested Citation

  • Takashi Fukuda & Jauhari Dahalan, 2012. "Finance-Growth-Crisis Nexus in Asian Emerging Economies: Evidence from VECM and ARDL Assessment," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 5(2), pages 69-100, August.
  • Handle: RePEc:tei:journl:v:5:y:2012:i:2:p:69-100
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    Cited by:

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    3. Suela Kristo, 2013. "Efficiency of the Albanian banking system: Traditional approach and Stochastic Frontier Analysis," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 6(3), pages 61-78, December.
    4. Nikola Radivojevic & Jelena Jovovic, 2017. "Examining of Determinants of Non-Performing Loans," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(3), pages 300-316.
    5. Vasiliki Makri & Konstantinos Papadatos, 2014. "How accounting information and macroeconomic environment determine credit risk? Evidence from Greece," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 7(1), pages 129-143, April.

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    More about this item

    Keywords

    Finance-growth nexus; financial crisis; Asia; VECM; ARDL;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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