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Financial development and economic growth in Vietnam

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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.

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Notes

  1. See Allen and Gale (2000), Levine (2002), Beck and Levine (2004) and Luintel et al. (2008) for an interesting survey.

  2. 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).

  3. 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.

  4. The value of the dummy variable was set equal to 1 in 1997 and 0 in all other years.

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Authors and Affiliations

  1. University of the Sunshine Coast, Maroochydore, Queensland, Australia

    Sajid Anwar

  2. State Bank of Vietnam, Hanoi, Vietnam

    Lan Phi Nguyen

Authors
  1. Sajid Anwar
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  2. Lan Phi Nguyen
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Correspondence to Sajid Anwar.

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.

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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

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