Written by Mekong Institute

This research analyzes the status and relationship of financial development, trade openness and economic growth by the ARDL approach of the Cambodia-Laos-Vietnam Development Triangle area or CLV. This group of countries has developed a finance sector and opened trade within the same period between the second half of the 1980s and the first half of 1990s. This period of time has seen a changed system from central economic planning to a marketoriented economy system open to more trade and investments compared to the past.

This change has lead to higher economic growth in the CLV countries compared to other member countries in ASEAN. CLV also has comparative advantages in attracting more foreign direct investments in the agriculture and industry sectors. Currently, the number of banks and financial institutions of each country have increased in terms of quality and quantity and play an important service role in the financial sector in the economy of the countries.

The ratio between the money supply as a component of GDP is rising and the volume of trade in each country tends to also increase in spite of the effects of the global financial crisis. However, the increase of such a level of financial development and trade openness is still not having a positively affect with regards to economic growth with the exception of some countries. For examples, in Cambodia, the long term financial development has an effect on real income per capita. However, in Laos, the openness of trade has a relationship with real income per capita or the growth of economy in both short and long terms. The reason for this is that fundamental and economic structures in each country are different.