The relationship between financial development and economic growth is not conclusive in the existing economics literature. The aim of this article is to test two hypotheses, ‘supply-leading’ hypothesis and ‘demand-following’ hypothesis, using time series data from Laos. The autoregressive distributed lag (ARDL) bounds testing approach to cointegration is used to carry out this task. Our results confirm the presence of feedback effect between both the variables. Financial development promotes economic growth and as a result, economic growth leads to financial development.
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Kyophilavong et al. (2016) studied this question.
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