The impact of financial development on economic growth has been documented in
abundant studies recently. This paper examines the finance-growth relationship under the
Vietnam's situation from two perspectives. First, I explore the growth and financial
development relationship in Vietnam by comparing Vietnam’s data characteristics with that of
other countries. Second, I apply Business Cycle Accounting (BCA) wedge methodology to
explore the finance-growth causality in Vietnam. There are two major findings: (i) Vietnam’s
relationship between income level changes and finance is stronger than relationship between
economic growth rate and finance under global perspective; (ii) capital wedge which captures
the evolution of financial development is the prime driving force of Vietnam’s output growth
during 1998 to 2007 and the second important contribution during the whole studied period.

TABLE OF CONTENTS
ABSTRACT ............................................................................................................................................ i
ACKNOWLEDGEMENTS ................................................................................................................. ii
CHAPTER 1: INTRODUCTION ........................................................................................................ 1
CHAPTER 2: COUNTRY BACKGROUND ..................................................................................... 4
2.1 Economic growth review ........................................................................................................ 4
2.2 Financial system review .......................................................................................................... 5
2.2.1 Vietnamese banking system ............................................................................................ 6
2.2.2 Vietnamese stock market .............................................................................................. 12
CHAPTER 3: LITERATURE REVIEW .......................................................................................... 17
3.1 Literature review on finance and growth .............................................................................. 17
3.1.1 Indicators of financial development .............................................................................. 18
3.1.2 Indicators of economic growth ..................................................................................... 19
3.1.3 Empirical results of finance-growth nexus ................................................................... 20
3.2 Literature review on Vietnam’s finance-growth relationship ............................................... 21
CHAPTER 4: A DISCUSSION OF GLOBE’S AND VIETNAM’S FINANCIAL
DEVELOPMENT ............................................................................................................................... 22
4.1 Interpretation of global financial development from GFDD and Vietnam’s position .......... 22
4.1.1 Financial depth .............................................................................................................. 24
4.1.2 Financial efficiency ....................................................................................................... 29
4.1.3 Financial stability .......................................................................................................... 34
4.2 Discussion of globe’s and Vietnam’s finance-growth nexus ................................................ 39
4.2.1 Global finance-growth nexus ........................................................................................ 39
4.2.2 Vietnam’s finance-growth nexus .................................................................................. 46
CHAPTER 5: VIETNAM’S FINANCE – GROWTH CAUSALITY THROUGH THE LENS OF
BUSINESS CYCLE ACCOUNTING................................................................................................ 51
5.1 Literature on Business Cycle Accounting (BCA) ................................................................. 51
5.2 Methodology ......................................................................................................................... 52
5.3 The model ............................................................................................................................. 54
5.4 Quantifying the model .......................................................................................................... 54
5.4.1 Data ............................................................................................................................... 54
5.4.2 Parameters ..................................................................................................................... 54
5.4.3 Assumptions .................................................................................................................. 54
5.5 Measuring results .................................................................................................................. 55
iii

5.5.1 Wedge’s value...............................................................................................................55
5.5.2 Model with wedge’s contribution ................................................................................. 56
5.5.3 The role of capital wedge .............................................................................................. 58
CHAPTER 6: CONCLUDING REMARK ....................................................................................... 62
Appendix: Data sources ...................................................................................................................... 65
References ............................................................................................................................................ 66

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