Does Financial Development Leads Economic Growth? Evidence from Emerging Asian Markets

Abstract

The essential interlocks connecting financial development and economic growth improves financial progress and reduces transicition, knowledge and monitoring cost of financial business. The target of this manuscript is to assess the premise that “financial development leads economic growth”. The analysis is conducted by employing Time series information for three emerging Asian states; Korea, Philippines and Thailand. Information is obtained from WDI for the era of 1976-2015. Unit root test, Cointegration test, forecast variance decomposition and impulse response function analysis are employed to investigate correlations among variables in the Vector Auto Regression (VAR) structure and, consequently, varies from the further standard Granger causality approach. The analysis provides the support to the hypothesis for Korea and Thailand that “financial development leads to economic growth”. Financial development is not only a causative factor, but indeed, the main significant feature of economic growth. The financial sector gives benefit for the economic development as credit to non public sector to GDP ratio series are employed as the financial development indicator.