FINANCIAL LIBERALIZATION AND ECONOMIC GROWTH IN INDONESIA

Rini D Astuti

Abstract


The objective of this study was to examine the empirical relationship between financial and economic growth by using broad money as a percentage of GDP and bank credit to the private sector as a percentage of GDP as an indicators of financial liberalization. It argues that broad money as a percentage of GDP have a clear disadvantage over economic growth in Indonesia during 1970-2002. The main findings are as follows: First, in short run, the study finds its measure of broad money as a percentage of GDP to have a significantly negative effect on the economic growth, and it measure of bank credit to the private sector as a percentage of GDP has no significantly positive effect on the economic growth. Second, in long run, it finds the impact of broad money as a percentage of GDP and bank credit to the private sector as a percentage of GDP on economic growth to be consistent with the short-run.


Keywords


Economic Growth; Financial Liberalization; Error Correction Model

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