An Analysis of Lasso and Ridge Methods of the Relationship between Financial Development and Economic Growth

Thi Thuy Hang Le, Le Kieu Oanh Dao, Van Chien Nguyen and Xuan Dung Nguyen

The impact of financial development on economic growth is one of essential elements for investors, creditors, companies to manage their assets; and the Vietnamese government to adjust their policies. In the current research, the approaches of Lasso and Ridge have been implemented because of its excellent on processing the multi-collinearity phenomenon and reasonable variables used in the model. The study has used the quarterly data from 2000 to 2018, and factors representing for financial development as money supply, inflation, exchange rate, and interest rate. The results demonstrate that exchange rate is not a driving force for economic growth in Vietnam. In addition, a higher degree of money supply can significantly promote a higher degree of economic growth. A negative effect from inflation and interest rate on economic growth can be found.

Volume 12 | Issue 7

Pages: 139-146

DOI: 10.5373/JARDCS/V12I7/20201994