Financial development and economic growth: the cases of Thailand, Malaysia, and the Philippines

Abstract

This study investigates relationship between financial development and economic growth in Thailand, Malaysia, and the Philippines from 1974-2011. Panel cointegration approach and vector error correction model are employed to find a long-term relationship between financial development and economic growth in these three countries. When considering overall financial development in a panel data, panel cointegration estimation shows a positive long-term relationship between overall financial development and growth. Subsequently, financial development is divided into three constituent parts of the banking system, equity market, and private bond market. Positive relationships between economic growth and development in the banking sector and bond market are found in the long-run, whereas the stock market is indicated to be insignificantly related to growth. Furthermore, overall financial development is shown to be positively correlated with its own growth in the long-term in Thailand and Malaysias economies. However, insignificant negative correlation is found in the Philippines.