Financial Development, Economic Growth and Financial Crisis in Asian Emerging Economies

Takashi Fukuda


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 can lead to financial crisis; and (3) financial crisis has a negative impact on economic growth (except Korea for the last two).

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