The Finance-Growth Nexus in the High Performance Asian Economies: A Bootstrap Panel Causality Analysis

This study examines the causal link between financial development and economic growth in the High Performance Asian Economies (HPAEs). The newly developed panel causality testing approach of Emirmahmutoglu and Kose (2011) which controls for both cross-sectional dependency and heterogeneity across countries is applied to the 7 HPAEs for the period 1989-2017. In order to capture the relationship between real sector development and both credit and stock market development, two different indicators are used. The panel findings indicate that while there is two-way causal relationship between stock market development and economic growth, the causality exist only one-way from growth to credit market development. This implies that the demand-following hypothesis is supported in the panel of HPAEs. Moreover, the results show that the existence and direction of causality vary among the different HPAEs. These various evidences lead to country specific policy implications and recommendations