Keywords:Financial Liberalization, Economic Growth, VAR Model, Cointegration, Causality
The objectives of this study had two-fold: 1) to overview financial liberalization and economic development in Thailand; 2) to examine the relationship between financial liberalization and economic growth by studying the issue of financial liberalization which affects the financial sector and economic growth.
Both descriptive and quantitative analyses were employed in this study. For descriptive analysis, it explained the background and general conditions of financial liberalization together with the related monetary policy in Thailand. A Vector Autoregressive (VAR) model with the applications of cointegration and causality test was employed for the quantitative analysis. The variables used in this study were time series data including Gross Domestic Product (GDP), bank deposit, market capitalization in the Stock Exchange of Thailand and outstanding debt instrument in the bond market from the period of 1997-Q1 through 2014-Q4.
The results of the study showed that 1) during the past two decades, financial sector in Thailand tended to have greater development and liberalization according to the current global changes. Bank of Thailand had facilitated deregulation and the movement of capital flow between countries and had positive impacts on the financial sector development. 2) financial liberalization had positive impacts on economic growth as well. However, this study also indicates that stock exchange was only the channel affecting economic growth. Thus, the continuous development in this channel was necessary for support economic growth. While the other two channels, namely deposits in the banking system and bond markets had no significant effects on economic growth in Thailand during this period of time.