This paper examines the relationship between banking sector development, stock market development, economic growth, and four other macroeconomic variables in ASEAN countries for the period 1961–2012. Using principal component analysis for the construction of the development indices and a panel vector auto‐regressive model for testing the Granger causalities, this study finds the presence of both unidirectional and bidirectional causality links between these variables. The study contributes to understanding the importance of the interrelationship between the variables and combines the different strands of the literature. It also contributes to the literature by focusing on a group of countries that have not been studied before. One particular policy recommendation is to make the banking sector more accessible for those country's inhabitants that do not have bank accounts. Another policy recommendation is to nurture stock market development, which will facilitate the increased raising of capital for investment purposes to enhance economic growth.

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Highlights • We assess the causal relationship between economic growth, and four different types of financial development. • The empirical investigation follows ASEAN Regional Forum countries between 1991 and 2012. • We use a panel vector autoregressive model for detecting the direction of causality between these variables. • The study demonstrates both unidirectional and bidirectional causality between these variables.

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