This study empirically examines the effects of the global financial crisis on economic growth through a model that considers various sectoral indices, with particular reference to the stock market, bank, and real estate. Using analysis of cointegration, parsimonious error correction model (PECM), impulse response function (IRF) and variance decomposition analysis (VDC), the study found that the effect of the global financial crisis on growth differs among ASEAN-5 countries. The PECM analysis reveals that the crisis has a real effect on the stock market and bank equations. Three out of five ASEAN countries show that the global financial crisis has a bigger effect on bank equations. This suggests that the global financial crisis created the conditions for the current credit crisis wherein increased risk premium is charged on banks loans globally. The findings from IRF and VDC highlight the shock and error variance in economic growth which were mostly explained by the stock market and banks. This finding suggests that the stock market and the banking sector provide the best leading information for economic activity, especially in developing countries. Thus, a new regulatory governance needs to be based on a well-functioning network of national and regional authorities and include international supervision of financial institutions with a global reach.
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