Does Financial Development Cause Economic Growth? A Panel Data Dynamic Analysis for the Asian Developing Countries.

This paper examines the causal relationship between financial development and economic growth of the Asian developing countries from a panel data perspective and uses the system GMM technique developed by Arellano & Bover (1995) and Blundell & Bond (1998) and conducts causality testing analysis. The panel data sets involve 13 Asian developing countries: Bangladesh, India, Indonesia, South Korea, Lao PDR, Malaysia, Myanmar, Nepal, Pakistan, Philippine, Singapore, Sri Lanka and Thailand for the period 1990–1998. The result of our study is in agreement with other causality studies by Calderon & Liu (2003), Fase & Abma (2003), and Christopoulos & Tsionas (2004) that financial development promotes growth, thus supporting the old Schumpeterian hypothesis and Patrick's ‘supply-leading’ hypothesis. [ABSTRACT FROM AUTHOR]