Title: Causality between the pillars of development and economic growth: a panel VAR application

Authors: Rudra P. Pradhan; John H. Hall

Addresses: Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur WB 721302, India ' Department of Financial Management, University of Pretoria, Private bag X20 Hatfield, Pretoria 0028, Republic of South Africa

Abstract: This paper examines the long-term relationship between financial development, social development and economic growth in 15 Asian countries for the period from 1961 to 2012. Using principal component analysis to construct development indices and a panel vector auto-regressive (VAR) model to test Granger causalities, the study identified the presence of bidirectional causality between economic growth and financial development. They predict a country's level of social development. The policy implication of this study is that, in order to maintain sustainable social development in the 15 selected Asian countries, economic policies should recognise differences in the financial development and economic growth of a given country.

Keywords: principal component analysis; PCA; financial development; Asia; sustainable social development; economic growth; panel VAR; Granger causality; vector auto-regressive; modelling; economic policies; sustainability.

DOI: 10.1504/IJSEM.2014.059721

International Journal of Services, Economics and Management, 2014 Vol.6 No.1, pp.38 - 62

Received: 27 Mar 2013
Accepted: 17 Sep 2013

Published online: 28 Jun 2014 *

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