Finance, investment, and growth: Time series evidence from 10 Asian economies

This paper takes a time series approach to investigate whether the intensity of financial intermediation promoted investment and growth in 10 Asian economies over the 1950-2000 period. We do this by using vector autoregressive models (VARs) and vector error correction models (VECMs) to examine the nature of statistical causality between measures of financial and real sector activity. Our results indicate that finance did, on the whole, act as a driving force behind investment. Evidence of a role for financial factors in output is weaker. The findings are consistent with a factor accumulation channel as the primary mechanism through which the financial sector influenced macroeconomic outcomes in these countries.