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Linking Financial Development and Total Factor Productivity of the Philippines

Calub, Renz Adrian (2011): Linking Financial Development and Total Factor Productivity of the Philippines.

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Abstract

Financial development is said to have an impact on growth. In this paper we try to extend this notion to total factor productivity. As Bianchi [2010] noted, easing access to capital may encourage entrepreneurship and thus productivity. To test this relationship, we use Cororaton and Cuenca’s [2001] estimates of TFP and World Bank’s M3 to GDP (liquid liabilities to GDP) as a measure of financial depth. Estimates from our vector error correction model suggest that there is indeed a dynamic relationship between financial development and TFP.

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