A Post-Keynesian Approach
New Directions in Modern Economics series
Edited by Claude Gnos, Louis-Philippe Rochon and Domenica Tropeano
Chapter 10: Financial Development and Economic Growth through a Post-Keynesian Lens: Hong Kong Case Study
10. Financial development and economic growth through a postKeynesian lens: Hong Kong case study Taha Chaiechi 1. INTRODUCTION 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 of financial markets and the 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 (vector auto regression) format. The empirical analysis of this study provides insights into the functioning of the Hong Kong macroeconomy, investigates the dynamic responses of the model to shocks in indicators of financial development and determines whether the effects of such shocks on the long-run relations disappear. 2. THEORETICAL LITERATURE Development economics emerged as a unique discipline after World War II, However, most of the early literature was concerned with real rather than financial aspects of economic development. Following the regime changes that have occurred in the international financial system after the 188 GNOS 9781848440685 PRINT.indd 188 27/04/2012 11:03 Financial development in Hong Kong 189 early 1970s,...
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