Banking System Development and Economic Growth: Evidence from a Sample of High Income Countries and Low & Middle Income Countries
Banking System Development and Economic Growth: Evidence from a Sample of High Income Countries and Low & Middle Income Countries

Author(s): Lukáš Vodička
Subject(s): National Economy, Business Economy / Management, Economic history, Economic development, Transformation Period (1990 - 2010), Present Times (2010 - today)
Published by: Masarykova univerzita nakladatelství
Keywords: banking; GMM; economic growth;
Summary/Abstract: This paper evaluates the relationship between banking system development and economic growth using data from 141 countries over the 1998 – 2015 period. Observed countries are also divided into two groups: high income countries and low & middle income countries. The set of explaining determinants describes three characteristics of the banking system – depth, efficiency and stability. The data is collected from following databases: World Development Indicators, Global Financial Development, KOF Index of Globalization and Financial Access Survey. Two-step system GMM estimator is used to address the issue of endogeneity. Robustness of the obtained results is tested with fixed-effects estimator. Using these methods we find that bigger banking system per se does not foster economic output, however its quality does. In case of high-income countries greater effect of banking sector instability on economic growth is observed.

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