The nexus of financial sector development and economic growth for ASEAN countries

Financial sector development has been touted as one of the most important determinants of economic growth. However, the nature of the relationship between financial sector development and economic growth lacks consensus among researchers and policy makers. This study attempts to explore the nexus between financial sector development and economic growth for ASEAN countries using the Ganger causality and co-integration tests. The preliminary results indicate that the financial sector development and economic growth variable are cointegrated. These results indicate that the two time series share long run equilibrium relationship. The results from the Granger causality test reveal that for most of the sample countries, causality runs from financial sector development to economic growth. The policy implication of the study is that monetary authorities of the respective sample countries should develop and implement policies that are conducive to financial sector development in order to attain higher economic growth in the future.