Abstract
ABSTRACTWe construct an index of financial development for twenty-three Asian economies based on sub-indices of access, depth, and efficiency of financial institutions and markets and find evidence that economies with weaker financial systems are catching up to the Asian benchmark economies, namely Hong Kong, China; Japan; the Republic of Korea; and Singapore. Gross domestic product (GDP) per capita, aggregate GDP, and mobile subscriptions all increase the growth rate of financial development in Asian economies while institutional factors have insignificant or ambiguous effects. We also evaluate the relative importance of the sub-indices in delivering high economic growth, low volatility, and greater financial access.
Highlights
Having a financial system that does a good job of delivering essential services is extremely important for economic development, and ensuring strong finance sector development is crucial for growth and poverty reduction
Demetriades and Hussein (1996) found that per capita Gross domestic product (GDP) growth led to financial development in some economies though the relation could be bidirectional in countries such as the Republic of Korea and Thailand
We have shown graphically that financial development in many Asian economies appears to be converging to the levels of the benchmark group
Summary
Having a financial system that does a good job of delivering essential services is extremely important for economic development, and ensuring strong finance sector development is crucial for growth and poverty reduction. Countries with a higher level of economic development (per capita GDP) need more sophisticated financial systems for the better functioning of the economy and will have greater growth in financial development. There will be a greater need for institutions to transform risk, reducing it through aggregation and enabling it to be carried by those more willing to bear it In this regard, Ang and McKibbin (2007) studied the case of Malaysia which has a history of finance sector reforms since the 1960s and suggested that these reforms were carried out in response to per capita GDP growth that created a demand for better financial services. Demetriades and Hussein (1996) found that per capita GDP growth led to financial development in some economies though the relation could be bidirectional in countries such as the Republic of Korea and Thailand. Using a quantitative indicator of legal change over time, the creditor protection index, and the ratio of private bank credit to nominal GDP per capita for banking system development, they obtained a causal relation from legal reform to banking development independent of real income growth and stock market development
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
