A Panel Data Analysis of the Relationship between Financial Development and Economic Growth in Asian Countries

The causal relationship between economic growth and financial development is of great importance in terms of the dynamics of economic growth and the financial background it provides. The aim of this study is to determine the existence and direction of the relationship between financial development and economic growth in selected Asian countries. The financial development index used in the analysis is an index reported by the IMF and is based on the depth, access and efficiency of financial institutions and financial markets. In addition, gross fixed capital formation and labor force are added to the model as control variables. In this panel data analysis of 24 Asian countries covering the period 2000-2021, Cross Section Augmented Dickey-Fuller (CADF) Unit Root Test and Westerlund ECM Panel Cointegration tests are applied. Dumitrescu and Hurlin (2012) Panel Granger causality test was used for causality analysis. The heterogeneous results of the study provide evidence of a causal relationship between GDP and financial development across countries. According to the findings of the study, instead of a general policy recommendation, it would be appropriate for countries to determine policies according to their own economic and financial characteristics, considering that both variables affect each other.