Financial development and economic growth in selected ASEAN countries

Abstract

This study investigated the relationship between financial development and economic growth in selected ASEAN countries by using Bayesian regression model. In this work focuses on annually data of selected ASEAN countries covering the period 2010-2019. Furthermore, the study separated independent variables into three group of variables consisting of financial institution, financial market, and financial system development. In each group of variables represent their own characteristics to explain the effect of financial development. Firstly, financial institution, which consists of domestic credit to private sector, commercial bank branches (per 100,000 adults), Automated teller machines (ATMs) (per 100,000 adults) and interest rate spread, presents the impact of institution in financial sector. Secondary, financial market, that consists of stocks traded, market capitalization of listed domestic companies and stocks turnover ratio, represents the effect of money market and capital market. Thirdly, financial system development, which consists of credit card, debit card, and e-money, is the contribution of this study. These variables focus on the cashless payment transaction to identify the financial system development. The results of this study separated in to two parts. First part is the consequence of individual countries. This part selects the best model and independent variables for explaining real GDP then, the selected models and variables were estimated by Bayesian regression model. The result of first part shows that almost variables in each group are positive relationship on real GDP. Second part is the result of selected ASEAN countries as a group. This part focuses on the result as group of countries so, in this section used panel data to estimate. The variables most appropriate to describe real GDP were financial market variables. Based on the results, this study offers useful information for policymakers to promote the improvement of financial especially in the national financial planning in the future. Moreover, the contribution of this study provides a direction to future study about cashless payment in selected ASEAN countries.