Financial deepening and institutional development: some Asian experiences

In the literature of development finance, both the structuralist's "two-gap' approach of Chenery and Strout and the financialist's "liberalisation' approach of McKinnon and Shaw represent the two polar theories for academic research and policy recommendations. Harris has attempted to set up a simple model incorporating the two approaches and tested it with the experiences of five Asian economies. This paper first employed Harris' model, and empirically extended the analysis to include other Asian economies, giving particular attention to the financial impacts on growth. Secondly, an attempt is made to incorporate the structure of financial institutions as an instrument of analysis. A general conclusion is that economies with lesser government controlled financial institutions tend to face a more favourable climate for financial development. -Authors