The effect of financial development on economic growth: evidence from Asian countries

Abstract

This study estimates the effect of financial development on economic growth in Asian countries in the period from 2000 to 2011. Based on unbalanced panel data, this effect is examined by Fixed effects model (FEM) and the first difference Generalizes Methods of Moments approach (GMM). The findings indicate that financial development has significant impacts on economic growth on both estimation techniques. However, these impacts depend significantly on estimation methods and proxies for financial development. The results of FEM and first difference GMM imply that financial depth and domestic credit to private sector have negative impact on growth, but there is no relationship between stock market development and economic growth. On the other hand, while a positive relationship between the ratio of commercial – central bank assets and growth rate of real GDP per capita is shown by FEM, this indicator is not related to growth rates in GMM results.