Abstract
This article examines the causality between financial development, economic growth and financial crisis in India, Indonesia, Korea, Malaysia and Thailand; all these countries are known as emerging economies with well known financial crisis episodes. The summary indicators of financial development, financial crisis and financial repression are created through the principal component method . The cointegration and Granger causality are investigated by using two techniques of vector error correction model (VECM) and autoregressive distributed lag (ARDL). The main findings are: (1) the direction of the finance-growth nexus is a country-specific matter ; (2) deeper financial development c an lead to financial crisis; and (3) financial crisis has a negative impact on economic growth (except Korea for the last two).
Highlights
Since the seminal works of McKinnon (1973) and Shaw (1973) were published, the finance-growth nexus ― how financial development and economic growth interact with each other ― has been extensively assessed but the empirical results on this issue have not been reconciled yet
This article examines the causality between financial development, economic growth and financial crisis in India, Indonesia, Korea, Malaysia and Thailand; all these countries are known as emerging economies with well known financial crisis episodes
The main findings are: (1) the direction of the finance-growth nexus is a country-specific matter; (2) deeper financial development can lead to financial crisis; and (3) financial crisis has a negative impact on economic growth
Summary
Since the seminal works of McKinnon (1973) and Shaw (1973) were published, the finance-growth nexus ― how financial development and economic growth interact with each other ― has been extensively assessed but the empirical results on this issue have not been reconciled yet. This article attempts to integrate these two subjects or to examine the “finance-growth-crisis” nexus in India, Indonesia, South Korea (hereafter Korea), Malaysia and Thailand. All the countries are known as emerging economies with rapid financial deepening, high economic growth and financial crisis episodes. As described by the term “East Asian miracle” (World Bank, 1993), the high economic achievements of Indonesia, Korea, Malaysia and Thailand had been praised. Their success stories, suddenly ended as the Asian crisis came over the period 1997 to 1998. These stories prompt us to examine the “finance-growth-crisis nexus” in these countries. In searching for more plausible estimates, these two elements should be taken into estimation
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