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Financial development and economic growth: the case of Taiwan

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  • Tsangyao Chang
  • Steven Caudill

Abstract

This paper examines the relationship between financial development and economic growth in Taiwan from 1962 to 1998. Using a four-variable VAR model, the competing hypotheses of demand-following versus supply-leading are empirically tested. The results from Granger causality tests based on vector error-correction models (VECM) suggest unidirectional causality running from financial development (measured as the ratio of M2 to GDP) to economic growth. This result supports the supply-leading hypothesis for Taiwan. This finding highlights the importance of financial development in Taiwan's recent growth.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 12 ()
Pages: 1329-1335

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Handle: RePEc:taf:applec:v:37:y:2005:i:12:p:1329-1335

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  1. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  2. Luintel, Kul B. & Khan, Mosahid, 1999. "A quantitative reassessment of the finance-growth nexus: evidence from a multivariate VAR," Journal of Development Economics, Elsevier, vol. 60(2), pages 381-405, December.
  3. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
  4. Panicos O. Demetriades & Khaled A.Hussein, 1995. "Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries," Keele Department of Economics Discussion Papers (1995-2001), Department of Economics, Keele University 95/13, Department of Economics, Keele University.
  5. John Thornton, 1996. "Financial deepening and economic growth in developing economics," Applied Economics Letters, Taylor & Francis Journals, vol. 3(4), pages 243-246.
  6. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  8. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
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Citations

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Cited by:
  1. Alimi, R. Santos, 2014. "DOLS Cointegration Vector Estimation of the Effect of Inflation and Financial Deepening on Output Growth in Nigeria," MPRA Paper 57182, University Library of Munich, Germany.
  2. Halicioglu, Ferda, 2007. "The Financial Development and Economic Growth Nexus for Turkey," MPRA Paper 3566, University Library of Munich, Germany.
  3. Athanasios Vazakidis & Antonios Adamopoulos, 2011. "Financial Development and Economic Growth: An Empirical Analysis for the UK," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 135-148.
  4. Marcelo P. Dabós & Ernesto Gantman, 2010. "The Fading Link? A New Empirical Analysis of the Relationship Between Financial Development and Economic Growth," Working Papers 2010-013, Becker Friedman Institute for Research In Economics.
  5. Uğur Soytas & Engin Kucukkaya, 2011. "Economic growth and financial development in Turkey: new evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 18(6), pages 595-600.
  6. Johannes Fedderke & John Luiz & Raphael Kadt, 2008. "Using fractionalization indexes: deriving methodological principles for growth studies from time series evidence," Social Indicators Research, Springer, vol. 85(2), pages 257-278, January.
  7. Bassam AbuAl-Foul & Ismail Genc & Musa Darayseh, . "On the Causal Link between Financial Development and Economic Growth: Case of Jordan," Economics Working Papers 18-04/2014, School of Business Administration, American University of Sharjah.
  8. Thomas Gries & Manfred Kraft & Daniel Meierrieks, 2011. "Financial deepening, trade openness and economic growth in Latin America and the Caribbean," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 43(30), pages 4729-4739.
  9. Wolde-Rufael, Yemane, 2009. "Re-examining the financial development and economic growth nexus in Kenya," Economic Modelling, Elsevier, vol. 26(6), pages 1140-1146, November.
  10. Cheng, Su-Yin, 2012. "Substitution or complementary effects between banking and stock markets: Evidence from financial openness in Taiwan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 508-520.
  11. Thomas Gries & Manfred Kraft & Daniel Meierrieks, 2008. "Linkages between Financial Deepening,Trade Openness and Economic Development: Causality Evidence from Sub-Saharan Africa," Working Papers CIE 15, University of Paderborn, CIE Center for International Economics.
  12. repec:pdn:wpaper:17 is not listed on IDEAS
  13. Tronzano, Marco, 2011. "“Finance and Growth: A Reassessment of the Empirical Evidence for the Indian Economy” - Finanza e crescita: un riesame dell’evidenza empirica nel caso dell’India," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 64(3), pages 329-364.
  14. repec:pdn:wpaper:15 is not listed on IDEAS
  15. Malebogo Bakwena & Philip Bodman & Sandy Suardi, . "Making Abundant Natural Resources Work for Developing Economies: The Role of Financial Institutions," MRG Discussion Paper Series 2108, School of Economics, University of Queensland, Australia.
  16. Adamopoulos Antonios, 2010. "Credit Market Development and Economic Growth: An Empirical Analysis for Ireland," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 3-18.

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