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Financial development and economic growth: The case of eight Asian countries

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  • Sinha, Dipendra
  • Macri, Joseph

Abstract

This paper looks at the relationship between financial development and economic growth using time series data for eight Asian countries. First, we estimate augmented production functions where a financial development variable is added. Second, we conduct multivariate causality tests between the growth rate of income and the growth rates of the financial development variables. The regression results show a positive and significant relationship between the income variables and financial variables for India, Malaysia, Pakistan and Sri Lanka. The multivariate causality tests show a two-way causality relationship between the income and the financial variables for India and Malaysia, one-way causality from financial variables to income variables for Japan and Thailand and reverse causality for Korea, Pakistan and Philippines. Thus, our empirical results do not unambiguously support the general view of a clear and positive relationship between financial development and economic growth.

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  • Sinha, Dipendra & Macri, Joseph, 2001. "Financial development and economic growth: The case of eight Asian countries," MPRA Paper 18297, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:18297
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    10. Peter Lawrence, 2006. "Finance and development: why should causation matter?," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(7), pages 997-1016.
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    15. Nyasha, Sheilla & Odhiambo, Nicholas M., 2016. "Financial intermediaries, capital markets, and economic growth: empirical evidence from six countries," Working Papers 19908, University of South Africa, Department of Economics.
    16. Law, Siong Hook & Azman-Saini, W.N.W. & Smith, Peter, 2006. "Finance and growth in a small open emerging market," MPRA Paper 715, University Library of Munich, Germany.
    17. Chien-Chiang Lee & Swee Yoong Wong, 2005. "Inflationary Threshold Effects In The Relationship Between Financial Development And Economic Growth: Evidence From Taiwan And Japan," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 30(1), pages 49-69, June.
    18. Naseer, Ahsan & Su, Chi-Wei & Mirza, Nawazish & Li, Jing-Ping, 2020. "Double jeopardy of resources and investment curse in South Asia: Is technology the only way out?," Resources Policy, Elsevier, vol. 68(C).
    19. Nyasha, Sheilla & Gwenhure, Yvonne & Odhiambo, Nicholas M., 2017. "The Dynamic Causal Linkage Between Financial Development And Economic Growth: Empirical Evidence From Ethiopia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 70(1), pages 73-102.
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    More about this item

    Keywords

    finanacial development; economic growth; Asian countries;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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