Financial Development and Economic Growth: A Case Study of the Four Asian Tigers

Abstract

This paper examines the relationships between banking sector development, stock market development, and economic growth in the economies commonly known as the Asian Tigers: Taiwan, South Korea, Hong Kong, and Singapore. Using a VAR framework to test for Granger-causality and plot impulse response functions, I study the dynamics of financial intermediaries, markets, and real GDP per capita, ultimately finding that the finance-growth nexus is not homogenous across these economies. While both banking development and stock market development are found to positively influence growth in Singapore and South Korea, stock market development tends to be insignificant or even negative for growth in Taiwan, and neither banking nor stock market development is found to have a significant effect on growth in Hong Kong.