The causality between financial development and economic growth: Case of Asian economies

This paper investigates the long run relationship between financial development and economic growth for 16Asian economies with different levels of income using of the system method, which is considered the most efficientmanner. In addition, I employ Park's CCR test to estimate cointegrating vectors and run ordinary ECM as well asSURECM. Based on the results of Granger causality test in system method, I found strong evidence that causalityexists between the financial development and economic growth, evidence that China has a huge impact on Asianeconomy, and a system method is superior to traditional regression methods. The question might give further guidanceas to whether a well-developed financial sector is a necessary condition for a higher growth rates for developingcountries and provide an important policy implication for countries that have financial sectors that are comparativelyunderdeveloped.