The Relationship between Economic Growth and Financial Sector Development in Indonesia

  • Vijay Ghosh The UNSW Business School at the University of New South Wales, College Rd, Kensington NSW 2052, Australia.
  • Shabanna Verma Department of Economics, Santa Clara University, Santa Clara, CA, United States.
  • Nancy Mitra Division of Economics, Nanyang Technological University, Singapore.
  • Avrind Ariadno Faculty of Economics, University of Indonesia, Depok City, Indonesia.
  • Sahina Agarwal Department of Economics, University of Bath, Bath, United Kingdom.
  • Sam Padala School of Economics, Amity University, Mumbai, India.
  • Manojith Singh School of Economics, Amity University, Mumbai, India.

Abstract

What is the relationship between the finance sector development and economic growth? This paper is intended to analyze a fewer number of important financial factors using econometric analysis on some selected indicators of Indonesian financial sector during the period 1988 - 2013. This paper then tries to check whether the identified financial factors development cause economic growth or economic growth causes financial factors development. The Granger – Causality test shows that no financial factor significantly causes economic growth; rather economic growth causes the financial sector development during the period. In general, the financial sector of Indonesia is being unstably deepened with response to the demand of economic growth since 1988.

Keywords: Finance – growth nexus, Factor analysis Indonesia.

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Ghosh, V., Verma, S., Mitra, N., Ariadno, A., Agarwal, S., Padala, S., & Singh, M. (2017, December 8). The Relationship between Economic Growth and Financial Sector Development in Indonesia. International Journal of Emerging Trends in Social Sciences, 1(2), 61-67. https://doi.org/https://doi.org/10.20448/2001.12.61.67
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