The Relationship between Banking Sector, Stock Market Development and Economic Growth: The Case of East Asia and Pacific Countries

This thesis aims to investigate the relationship between the financial development and economic growth in East Asia and Pacific countries between the periods 1975 to 2015, using unit root test, cointegration test, Granger causality test and error correction model. The empirical results indicate that there is a long-run equilibrium relationship between the financial development and economic growth. We also found that banking sector positively affect economic growth unlike the stock market that inversely influences economic growth. East Asia and Pacific countries converges to its level of equilibrium in long-run by 2.92 percent through the financial sector contributions. Therefore, the influence of banking sector and the stock market on economic growth vary from one to another country and depends on the nature of country' resources. Our findings are compatible with some literatures and studies in the other regions and countries such as Malaysia, Kenya, Bangladesh, China and Saudi Arabia and other countries (Vaithilingam, 2008; Gleba Nila, 2015; Sheilla Nyasha et al, 2017; Banerjee et al. 2017; Wang, 2013). Keywords: Gross domestic product, Domestic credit to private sector, Stock value traded, East Asia, Pacific countries.