Financial Development and Growth: Can the APEC Experience Offer A Lesson for Asia

Abstract

In models of endogenous growth with financial development researchers typically find that a lower share of government ownership in the domestic financial sector leads to a greater efficiency and a higher rate of growth. We find no such evidence in the economies of the APEC. A greater privatisation of financial intermediaries in the APEC has only led to a greater volume of capital without any significant change in the overall efficiency. Nevertheless, a significant improvement in efficiency in the APEC has come from a greater access of the member countries to the international credit market. This finding implies that the real growth in East Asia should continue despite the recent problems of the domestic financial intermediaries, provided the region's access to international credit market continues to grow under the umbrella of APEC.