Abstract
By making use of a panel dataset that covers 61 provinces of Vietnam over the period 1997 to 2006, this paper examines the link between financial development and economic growth. Our analysis, which is based on endogenous growth theory, reveals that financial development has contributed to economic growth in Vietnam. We find that high ratio of credit to Gross Provincial Product (GPP) has accelerated economic growth in Vietnam. We also found a strong positive link between financial development and economic growth when alternative measures of financial development were used. The impact of foreign direct investment on economic growth will be stronger if more resources are invested in financial market development.
Similar content being viewed by others
Notes
The four SOCBs are the Bank for Foreign Trade of Vietnam (VCB), Vietnam Industrial and Commercial Bank (ICB), Bank for Investment and Development of Vietnam (BIDV), and Vietnam Bank for Agriculture and Rural Development (VBARD).
It has been argued that lagged variables do not always serve as good instruments and the estimated results may be sensitive to the choice of instruments. Accordingly, one should try to use other suitable instrumental variables. Unfortunately, lack of data prevented us from using other instrumental variables. Recent studies such as Barbosa and Eiriz (2009) and Suyanto et al. (2009) have also highlighted this problem but following other studies involving developing economies, they have also used lagged variables as instruments. We are grateful to the referee for highlighting this problem.
The value of the dummy variable was set equal to 1 in 1997 and 0 in all other years.
References
Abu-Bader S, Abu-Qarn AS (2008) Financial development and economic growth: the Egyptian experience. J Policy Model 30:887–898
Allen F, Gale D (2000) Comparing financial systems. MIT, Cambridge
Barbosa N, Eiriz V (2009) Linking corporate productivity to foreign direct investment: an empirical assessment. Int Bus Rev 18(1):1–13
Beck T, Levine R (2004) Stock markets, banks and growth: panel evidence. J Bank Financ 28:423–442
Bende-Nabende A, Ford J, Slater J (2001) FDI, Regional economic integration and endogenous growth: some evidence from Southeast Asia. Pac Econ Rev 6:383–399
Blankenau W, Simpon N (2004) Public education expenditures and economic growth. J Dev Econ 73(2):583–605
Braun M, Raddatz C (2007) Trade liberalization, capital account liberalization and the real effects of financial development. J Int Money Financ 26:730–761
Demetriades P, Hussein K (1996) Does financial development cause economic growth? Time series with a unit root. J Dev Econ 51:387–411
Demirguc-Kent A, Levine R (1996) Stock markets, corporate finance and economic growth: an overview. World Bank Econ Rev 10:223–239
Durham J (2004) Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth. Eur Econ Rev 48:285–306
Federici D, Carioli F (2009) Financial development and growth: an empirical analysis. Econ Model 26(2):285–294
Fischer S (1993) The role of macroeconomic factors in growth. J Monet Econ 32:485–512
Harvie C, Hoa TV (1997) Vietnam’s reforms and economic growth. ST. Martin, New York
Hsu CM, Lin SM (2000) Financial development and endogenous growth model. Industry of Free China 9:21–47
Husain A, Mody A, Rogoff K (2005) Exchange rate regime durability and performance in developing versus advanced economies. J Monet Econ 52:35–64
Kamin S, Rogers J (2000) Output and the real exchange rate in developing countries: an application to Mexico. J Dev Econ 61:85–109
King R, Levine R (1993) Finance and growth: Schumpeter might be right. Q J Econ 108:717–737
La-Porta R, Lopez-de-Silanes F, Shleifer A, Vishny RW (1998) Law and finance. J Polit Econ 106:1113–1155
Levine R (1999) Law, finance, and economic growth. J Financ Intermed 11:398–428
Levine R (2002) Bank-based or market-based financial systems: which is better? J Financ Intermed 11:398–428
Liu W-C, Hsu C (2006) The role of financial development in economic growth: the experiences of Taiwan, Korea, and Japan. J Asian Econ 17:667–690
Lucas R (1988) On the mechanics of economic development. J Monet Econ 22:3–42
Lucas R (1993) On the determinants of direct foreign investment: evidence from east and southeast Asia. World Dev 21:391–409
Luntiel K, Khan M, Arestis P, Theororidis K (2008) Financial structure and economic growth. J Dev Econ 86:181–200
Merton RC, Bodie Z (1995) A conceptual framework for analysing the financial environment. In: Crane DB (ed) The global financial system: a functional perspective. Harvard Business School, Boston
Nguyen AN, Nguyen TL, Dang TP, Quang N, Nguyen DC, Nguyen DN (2008) Foreign direct investment in Vietnam: Is there any evidence of technological spillover effects? Development and Policies Research Center Working Paper, Hanoi, Vietnam
Odedokun MO (1996) Alternative econometric approaches for analysing the role of the financial sector in economic growth: time-series evidence from LDCs. J Dev Econ 50:119–146
Romer P (1986) Increasing return and long-run growth. J Polit Econ 94:1002–1037
Roubini N, Sala-i-Martin X (1992) Financial repression and economic growth. J Dev Econ 39:5–30
Suyanto, Salim RA, Bloch H (2009) Does foreign direct investment lead to productivity spillovers? Firm level evidence from Indonesia. World Development doi:10.1016/j.worlddev.2009.05.009, Available online
Xuan NT, Xing Y (2008) Foreign direct investment and exports. Econ Transit 16(2):183–197
Author information
Authors and Affiliations
Corresponding author
Additional information
The authors are extremely grateful to an anonymous referee for helpful comments and suggestions. All remaining errors and omissions are our own responsibility. The views expressed in this paper do not necessarily reflect the views of the State Bank of Vietnam.
Rights and permissions
About this article
Cite this article
Anwar, S., Nguyen, L.P. Financial development and economic growth in Vietnam. J Econ Finan 35, 348–360 (2011). https://doi.org/10.1007/s12197-009-9106-2
Published:
Issue Date:
DOI: https://doi.org/10.1007/s12197-009-9106-2