Revisiting the financial development and economic growth nexus: Evidence from south Korea

This study revisits the financial development and economic growth nexus in South Korea using quarterly data from 1983Q1 to 2021Q3. Due to the dynamic nature of the relationship between economic growth and the financial development in South Korea over the study period, the recursive evolving window procedure of the time-varying Granger causality test is used for the estimation. Considering the possible negative effect of financial development on economic growth, the directions of the cause and effects are also calculated over different episodes. Positive causality episodes from growth to financial development are detected in the period leading to the financial crisis in 1997 and the ending period of drastic liberalization measures in the early 2000s. Interestingly, the positive effect of economic growth on financial development vanished, and the effect of financial development on real economy became negative in mid 2000s.