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Exploring the Root-Leaf Relationship between the Manufacturing and Financial Services Industry in Taiwan

Author

Listed:
  • Chin-Chen Chien

    (Graduate Institute of Finance, National Cheng Kung University, No. 1, University Road, Tainan City 701, Taiwan)

  • Cheng-Few Lee

    (Department of Finance, Rutgers University, 94 Rockafeller Road, Piscataway, NJ 08854, USA)

  • Ya-Yun Cheng

    (Department of International Business Management, Hsiuping Institute of Technology, No. 11, Gongye Rd., Dali City, Taichung County 412-80, Taiwan)

Abstract

We employ the concept of Granger causality to investigate the root-leaf relationship between the manufacturing and financial services industry in Taiwan's economy. Our empirical results show that manufacturing led finance for the last half century, which is consistent with the pattern of other emerging economies. However, the liberalization of the financial services industry in the 1980s changed the relationship from "manufacturing leads, finance follows" to a feedback system. Accordingly, the financial services industry should play a more important role than previously for Taiwan to maintain its economic growth.

Suggested Citation

  • Chin-Chen Chien & Cheng-Few Lee & Ya-Yun Cheng, 2008. "Exploring the Root-Leaf Relationship between the Manufacturing and Financial Services Industry in Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 11(04), pages 493-509.
    • Handle: RePEc:wsi:rpbfmp:v:11:y:2008:i:04:n:s0219091508001441
    DOI: 10.1142/S0219091508001441
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    References listed on IDEAS

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    1. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633, Decembrie.
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    More about this item

    Keywords

    Error correction model (ECM); Granger causality; economic growth;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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