Finance-Growth Nexus in Select Asian Countries

Abstract

The paper investigates the causal nexus between financial development and economic growth for 15 selected Asian countries for the period 1961-2010, using cointegration test and vector error correction model. The results suggest that in the case of Bangladesh, Sri Lanka and South Korea, financial development causes economic growth, whereas in the case of Bhutan, India, Pakistan, Malaysia, the Philippines and Singapore, economic growth causes financial development. The results further suggest that in the case of China, Hong Kong, Japan, Indonesia and Vietnam, there is a two-way causality between financial development and economic growth, while in the context of Thailand there is no causal link between the two. At the panel setting, the results reveal a unidirectional causality from economic growth to financial development in South Asia and Southeast Asia, while no sign of causality exists between financial development and economic growth in East Asia.