Financial development and economic growth through a Post-Keynesian lens: Hong Kong case study

Chaiechi, Taha

Abstract

Recent years have witnessed an increasing interest in the role of the financial sector in economic development. In the aftermath of the financial crises of 1997–98, it is becoming increasingly clear that a sound understanding of the interaction between financial markets and real sector is essential for economic growth and long-term prosperity. This clearly calls for further research on this important issue. The objective of this study is to examine the role of financial market development in producing a virtuous circle of high aggregate demand in Hong Kong. In this study, first, we develop a long run macroeconomic framework, following Stockhammer and Onaran (2003), which is a dynamic Post Keynesian and open economy model. Second, we account for economic theory by developing structural VAR format. The empirical analysis of this study provides insights into the functioning of the Hong Kong macroeconomy, and by investigating the dynamic responses of the model to shocks in indicators of financial development and determining whether the effects of such shocks on the long run relations disappear.

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Employment, growth, and development: a Post-Keynesian approach

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978-1-84844-068-5

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Edward Elgar

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Chelthenham, UK

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