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Empirical Economics

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27.03.2019

Banking sector development and economic growth in developing countries: a bootstrap panel Granger causality analysis

verfasst von: Khalil Mhadhbi, Chokri Terzi, Ali Bouchrika

Erschienen in: Empirical Economics | Ausgabe 6/2020

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Abstract

The purpose of this paper is to revisit the Granger causal relationship between banking sector development and economic growth for forty developing countries in the period 1970–2012. In order to capture the different aspects of banking sector development, we use two banking sector development indices and apply a panel bootstrap approach to Granger causality testing which takes into account cross-sectional dependence and heterogeneity issues. The empirical results show limited support for the supply-leading, demand-following and complementarity hypotheses, but provide evidence for a causal relationship between banking sector development and economic growth in twenty-five countries.

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Developing countries are defined according to their Gross National Income (GNI) per capita per year. Countries with a GNI of US$ 11,905 between 1970 and 2012 and less are defined as developing (specified by the World Bank, 2013).

Broad money supply, expressed as a percentage of GDP, is the sum of currency outside banks; demand and term deposits, including foreign currency deposits of resident sectors (other than the central bank); certificates of deposit and commercial paper.

It includes all credit to various sectors on a gross basis, with the exception of credit to the central government. It is expressed as a percentage of gross domestic products.

This credit, expressed as a percentage of GDP, refers to financial resources provided to the private sector, such as through loans, purchases of non-equity securities, trade credits and other accounts receivable that establish a claim for payment.

See Chang et al. (2013).

ε_1,i,t and ε_2,i,t are correlated when there is feedback between BSD and Y, i.e., in the non-reduced form of (1), called structural VAR, y_t depends on BSD_t and/or BSD_t depends on y_t. For a proof see Enders (2004).

For the details and exposition of the estimation and testing procedures, see Kónya (2006), Kar et al. (2011).

In order to save space, results from the lag selection procedure are not shown in the paper but are available upon reader's request.

The TSP routine written by László Kónya was used to obtain the results for the panel Granger causality test. We are grateful to László Kónya for sharing his codes.

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Titel: Banking sector development and economic growth in developing countries: a bootstrap panel Granger causality analysis
verfasst von: Khalil Mhadhbi
Chokri Terzi
Ali Bouchrika
Publikationsdatum: 27.03.2019
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 6/2020
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-019-01670-z

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