Effects of Private Credit and Capitalization Deepening on Economic Growth of the Asian Countries

This study examines patterns of the marginal effects of financial (private
credit and market capitalization) deepening on economic growth of the
Asian countries from 1980 to 2013. This study also tries to detect any
occurrences of excessive finance, period – wise. Outcome of the study
concludes that the strength of the finance – growth nexus has been
vanishing or weakening, (sometimes negative) in more recent time data of
the Asian countries. During the 2008 – post – crisis period when some
international regulatory frameworks like BASELIII was adopted and
implemented, the effect of deepening credit growth and market
capitalization are negative and smaller, respectively, on economic growth
may be due to identified excessive credit growth and capitalization. The
presence of excessive finance is also ensured. That is, BASELIII is not
working to limit excessive finance. During other periods, where excessive
finance is not diagnosed for private credit, the weaker or negative
strengths of the relationships may be due to (1) something has changed
in the fundamental relationship, (2) economic volatility and the increased
probability of large economic crashes and (3) the potential misallocation of
resources, even in good time.

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