Financial Development and Economic Growth of Developed Versus Asian Developing Countries: A Pooling Time-Series and Cross-Country Analysis

• Main Authors: WU, Chunchi, Tsai, S.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1999
• Subjects: Business
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/848
• Institution: Singapore Management University

This paper examines the relationship between financial market development and economic growth. By pooling the data of both developed and developing countries, we test the relation between the real GDP growth rate and financial development variables suggested by the aggregate capital endogenous growth model. We find that the capital absorption and saving rates have a significant positive relation with economic growth whereas the interest rate has a negative relation. Since the behavior of these explanatory variables reflects financial development, our results suggest that financial intermediation plays a significant role in economic growth. Furthermore, we find that there was a shift in the economic performance of Asian developing economies in the 1980s. Financial reforms in this region have resulted in a transitory adverse impact on the capital absorption rate. It also appears that economic growth has slowed down recently for most of these newly industrialized economies. Our result suggests that the lack of efficient financial markets may have hindered the economic performance of these economies. [ABSTRACT FROM AUTHOR]