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Does financial development cause economic growth? : Implication for policy in Korea

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  • Does financial development cause economic growth?
  • Yang, Yung Y.; Yi, Myung Hoon
  • Elsevier Science Ltd


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Title Does financial development cause economic growth?
Similar Titles
Sub Title

Implication for policy in Korea

Material Type Articles
Author(English)

Yang, Yung Y.; Yi, Myung Hoon

Publisher

[London]:Elsevier Science Ltd

Date 2008
Journal Title; Vol./Issue Journal of Policy Modeling:vol. 30(issue 5)
Pages 14
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Original Format pdf
Subject Economy < Macroeconomics
Economy < Financial Policy
Holding Elsevier Science Ltd

Abstract

The causal relationship between financial development and economic growth is examined, utilizing the superexogeneity methodology. We use annual data for Korea during 1971–2002, during which Korea has experienced both phenomenal economic growth and a variety of financial liberalization and reforms. In our tests for superexogeneity, we find that financial development control causes economic growth, but the reverse is not true. Our empirical results provide evidence in favor of the ‘finance causes growth’ view for the case of Korea while rejecting the ‘growth causes finance’ view. The policy implication is that Korea should give policy priority to financial reform rather than economic growth, because only a decisive and accelerated pace of financial restructuring can ensure a sustainable growth in the medium or long term.