The impacts of financial development on growth and sources of growth at the Vietnamese provincial level. This paper examines the role of financial development in growth and sources of growth in Vietnam by using provincial data. The results show that financial development impacts posi- tively on the efficiency of using savings, on the quantity and the quality of investment, on pro- ductivity, and hence on growth. | Journal of Economics and Development , April 2011, pp. 38 - 56 ISSN 1859 0020 The Impacts of Financial Development on Growth and Sources of Growth at the Vietnamese Provincial Level Nguyen Dinh Phan University of Technology of Ho Chi Minh City and University of Adelaide, Australia Abstract This paper examines the role of financial development in growth and sources of growth in Vietnam by using provincial data. The results show that financial development impacts positively on the efficiency of using savings, on the quantity and the quality of investment, on productivity, and hence on growth. In addition, there is an indirect impact of financial development on growth through increasing the quantity of foreign direct investment rather than the quality. Keywords: Financial development, growth, Vietnam 1. Introduction number of limitations. Firstly, the research studied just a limited number of countries. Secondly, it did not systematically control other factors affecting economic growth. In addition, it did not identify the direction of causality. Thirdly, the measure of financial development in that paper could be an inappropriate proxy for the functioning of the financial system (King and Levine, 1993; Levine, 1997). Finally, the results of both the theoretical background and the empirical evidence were still primary and rough (Eschenback, 2004). The advance in the studies regarding the relationship between financial development and growth has come from pioneering researchers such as Goldsmith (1969) to recent authors like Levine (1999), and Liu and Hsu (2006). In general, most researchers support the role of financial development in growth and sources of growth. Goldsmith (1969) suggested a positive correlation between financial development and economic growth. However, the study had a Journal of Economics and Development 38 Vol. 13, , April 2011 King and Levine (1993) overcame the shortcomings of Goldsmith (1969) by using the data of 77 .
