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

Altaf Hossain

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.