Empirical Reassessment of Bank - based Financial Development and Economic Growth in Hong Kong
Empirical Reassessment of Bank - based Financial Development and Economic Growth in Hong Kong

Summary/Abstract: This paper reassesses the nexus between bank- based financial development and economic growth in Hong Kong during the period 1990 – 2014. That is, it tests whether Hong Kong follows a supply- leading or a demand- following hypothesis. Empirically, economists have generally disagreed on the nexus between bank- based financial development and economic growth. Hong Kong is a typical economy which has experienced both bank- based financial expansion and economic expansion in the last three decades. It therefore serves as a quintessence for testing this overarching debate. Using the Toda- Yamamoto test for causality and two indicators of bank- based financial development – in order to report robust results – the paper finds Hong Kong to follow the supply- leading hypothesis. This implies that the banking sector is vital in driving economic growth in Hong Kong during the study period. Policymakers in this economy will only enhance economic growth further by targeting and ensuring efficient performance of bank- based financial institutions.

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