This paper examines the process of financial liberalization in Vietnam over the period from 1993 to 2013. On adopting Vector Error Correction Model (VECM), the results suggest that there is a longterm relation between economic growth and financial liberalization, in which the financial market liberalization and financial services liberalization provide better support during the growth of Vietnam’s economy. | Tran Huy Hoang et. al. / Journal of Economic Development 23(1) 25-49 25 Relationship between Financial Liberalization and Economic Growth in Emerging Economies: The Case of Vietnam TRAN HUY HOANG University of Finance and Marketing – hoangth@ NGUYEN HUU HUAN University of Economics HCMC – huanguyen@ NGUYEN THI THUY LINH Long Thanh District Committee, Dong Nai Province – thuylinhmof@ ARTICLE INFO ABSTRACT Article history: This paper examines the process of financial liberalization in Vietnam over the period from 1993 to 2013. On adopting Vector Error Correction Model (VECM), the results suggest that there is a longterm relation between economic growth and financial liberalization, in which the financial market liberalization and financial services liberalization provide better support during the growth of Vietnam’s economy. In addition, using various techniques including Granger causality test, impulse response analysis, and variance decomposition, the paper also clarifies the motives for financial liberalization from the process of short-term financial development and economic growth in the country. Received: Aug. 27. 2014 Received in revised form: Jan. 30. 2015 Accepted: Dec. 30 2015 Keywords: Financial liberalization, economic growth, financial integration. Tran Huy Hoang et. al. / Journal of Economic Development 23(1) 25-49 26 1. Introduction The association between financial liberalization and economic growth has captured interests of managers and researchers both in and out-country. Since the first studies of McKinnon (1973) and Shaw (1973), along with the widespread acceptance of financial liberalization concepts, many countries have made efforts to liberalize the financial sector by removing controls over interest rates and credit, allowing free access to financial markets, and particularly, in the branch of finance and banking, granting autonomy to commercial banks and promoting the capital account .
