Does financial development promote sectoral output growth? Evidence from selected Asia Pacific economies

The role of financial development to promote sectoral output growth is a prominent process to prevent misallocation of resources to unproductive economic sectors. Much empirical research has been conducted on aggregate growth level and neglecting specific sectors in economic activity, resulting in misleading policy implications. To address this issue, this study aims to investigate the relationship between financial development and sectoral output growth, specifically in the agricultural, industrial and services sectors in the Asia Pacific countries from 1990 to 2021 by employing the panel group mean dynamic ordinary least square and fully modified ordinary least square estimators. The long-run estimates show that influence of financial development on GDP for services sector is largest in developed countries compared to developing countries in the Asia Pacific region. Thus, long-term policies should be prioritized by policymakers in order to improve the financial system's ability to seamlessly distribute resources to productive economic sectors.