FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH IN ASIA

Abstract

This study has the propose to investigate the relationship between financial development and economic growth of overall countries in Asia, using the financial development indicators such as banking development indicators, stock market development indicators and economic growth taken as a panel data of all 48 countries in Asia that cover the period of 1975-2015. The study also proceeds the country-specific effects by applying panel data fixed effects methods, performing the causality test using panel var causality and apply the Generalized Method of Moments (GMM), following the literature the instrumental variable (IV) is included which showed the efficiency of financial development impact on economic growth. The empirical results indicate that stock market capitalization has several causal effects on economic growth. Furthermore, Asian economies with well-developed stock markets tended to grow faster than those without well-developed stock markets. Moreover, economies with large stock market capitalization are inclined to experience strong economic growth. However, there was no significant evidence to support that banking sector development indicators can boost economic growth in Asia.

Keywords: Financial development, Stock market, Economic growth, Panel data, Asia.