The Role of Financial Development in Vietnam’s Economic Growth in the Transition Period

Abstract

The study investigates the role of financial development in Vietnam’s economic growth in the period between 1990 and 2019. The multivariate regression model is built on the basis of endogenous growth model and is estimated by ARDL methodology. Financial development is examined respectively in terms of money supply, domestic credit, and stock market capitalization relative to GDP. The results show that only financial development, measured by the ratios of money supply to GDP and domestic credit to GDP, significantly influence on economic growth in both short and long terms. The relationship between financial development and economic growth is also non-linear. Threshold of credit growth to GDP ratio is found to be at 117%. The study also find that the effect of financial development on economic growth has decreased since 2007 due to the deep development of the financial system in terms of the ratio of credit to GDP.