Financial depth-economic growth nexus: Implications for the Ukrainian banking sector
-
Author(s)Pavlo KerimovLink to ORCID Index: https://orcid.org/0000-0002-7793-7788
-
DOIhttp://dx.doi.org/10.21511/bbs.16(4).2021.07
-
Article InfoVolume 16 2021 , Issue #4, pp. 72-83
- Cited by
- 585 Views
-
204 Downloads
The relevance of this study is warranted by changes in the modern understanding of the interrelation between economic growth and financial depth. While earlier studies consider it to be universally positive, newer ones tend to challenge both nature and direction of such a relationship. This paper aims to investigate the nature of the financial depth-economic growth nexus in Ukraine during 2008–2019 based on data provided by the State Statistics Committee of Ukraine and the National Bank of Ukraine, using the standard OLS regression. The resulting model with an adjusted R squared of 0,96 confirms a strong (within a 90% confidence interval) linear relationship between real GDP per capita, denominated in local currency, which was used as a proxy for economic growth, and financial depth, which was assessed using three indicators: the share of bank loans to non-financial institutions in real GDP, the share of non-bank loans to non-financial institutions in real GDP, and the share of stock market capitalization in real GDP. Both bank and non-bank loans to real GDP ratios have a negative impact on economic growth (UAH 2,154 and UAH 78,154 decline per 1% growth, respectively), while market capitalization provides a positive influence (UAH 1,641,130 growth per 1% growth). This implies that, despite concentrating the majority of the resources available to the Ukrainian financial sector, the banking sector does not contribute to its economic growth. This can be alleviated by imposing additional restrictions on the amount of government securities allowed in a bank’s capital structure.
Acknowledgments
The paper was funded as a part of the “Relationship between financial depth and economic growth in Ukraine” research project (No. 0121U110766), conducted at the State Institution “Institute for Economics and Forecasting of the NAS of Ukraine”.
- Keywords
-
JEL Classification (Paper profile tab)E44, O11, O47
-
References41
-
Tables4
-
Figures0
-
- Table 1. List of dependent variables
- Table 2. Descriptive statistics
- Table 3. Correlation matrix for variables
- Table 4. Regression outputs
-
- Acedański, J., & Petrucha, J. (2019). Level and dynamics of financial depth: consequences for volatility of GDP. Applied Economics, 51(31), 3389-3400.
- Ahokpossi, C., Ismail, K., Karmakar, S., & Koulet-Vickot, M. (2012). Financial depth in the WAEMU: benchmarking against frontier SSA countries (IMF Working Paper No. WP/13/161).
- Alrabadi, D. W. H., & Karabsheh, B. A. (2016). Financial deepening and economic growth: the case of Jordan. Journal of Accounting and Finance, 16(6), 158-166.
- Aluko, O. A., & Ibrahim, M. (2020). Institutions and the financial development – economic growth nexus in Sub-Saharan Africa. Economic Notes, 49(3), e12163.
- Apergis, N., Filippidis, I., & Economidou, C. (2007). Financial deepening and economic growth linkages: a panel data analysis. Review of World Economics, 143(1), 179-198.
- Arcand, J. L., Berkes, E., & Panizza, U. (2012). Too much finance? (IMF Working Paper No. WP/12/161).
- Barro, R. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economics, 106(2), 407-443.
- Bereslavs’ka, O. I. (2012). Reformuvannia finansovoho sektoru Ukrainy v konteksti antykryzovoho rehuliuvannia [Reforming the financial sector of Ukraine in the context of crisis management]. Naukovyi visnyk Natsionalnoho universytetu derzhavnoi podatkovoi sluzhby Ukrainy (ekonomika, pravo) – Scientific Bulletin of National University of State Tax Service of Ukraine (Economics, Law), 4, 61-66. (In Ukrainian).
- Boamah, J., Adongo, F.A., Essieku, R., & Lewis, J.A. (2018). Financial depth, gross fixed capital formation and economic growth: empirical analysis of 18 Asian economies. International Journal of Scientific and Education Research, 2(4), 120-130.
- Bogdan, T., & Lomakovych, V. (2021). Financialization of the global economy: Macroeconomic implications and policy challenges for Ukraine. Investment Management and Financial Innovations, 18(1), 151-164.
- Bublyk, Y. (2018). Structural-functional deformation of the financial sector in the Ukrainian economy. Economy and Forecasting, 2, 48-61. (In Ukrainian).
- Caballero, R., & Krishnamurthu, A. (2004). Fiscal Policy and Financial Depth (NBER Working Papers No. 10532).
- Caporale, G. M., Rault, C., Sova, R., & Sova, A. (2009). Financial development and economic growth: evidence from ten new EU members (DIW Discussion Papers No. 940).
- Cecchetti, S. G., & Kharroubi, E. (2015). Why does financial sector growth crowd out real economic growth? (BIS Working Papers No. 490).
- Christopoulos D. K., & Tsionas, E. G. (2004). Financial development and economic growth: evidence from panel unit root and cointegration tests. Journal of Development Economics, 73(1), 55-74.
- Chukwu, J. O., & Agu, C. C. (2009). Multivariate causality between financial depth and economic growth in Nigeria. African Review of Money Finance and Banking (pp. 7-21).
- Darrat, A. F. (2006). Are financial deepening and economic growth causally related? Another look at evidence. International Economic Journal, 13(3), 19-35.
- Goldsmith, R. (1969). Financial structure and development. New Haven, CT: Yale U. Press.
- Hasan, I., Horvath, R., & Mares, J. (2016). What type of finance matters for growth? Bayesian model averaging evidence (Policy Research Working Paper No. 7645).
- Isiaka, Abdulal., Isiaka, Abdulqu., Isiaka, Abdulqa., & Adenubi, O. (2021) What is the impact of financial depth on economic growth within middle income countries? International Journal of Research in Business and Social Science, 10(1), 122-130.
- Jun, Z., Wan, G., & Jin, Y. (2007). The Financial Deepening-Productivity Nexus in China: 1987–2001. Journal of Chinese Economic and Business Studies, 5(1), 37-49.
- Khan, M. S., & Senhadji, A. S. (2003). Financial Development and Economic Growth: A Review and New Evidence. Journal of African Economies, 12(2), 89-110.
- King, R., & Levine R. (1993). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics, 108(3), 717-737.
- Klein, M., & Olivei, G. (1999). Capital Account Liberalization, Financial Depth, and Economic Growth (Working Papers No. 99-6). Federal Reserve Bank of Boston.
- Koh, S. G. M., Lee, G. H. Y., & Bomhoff, E. J. (2019). The income inequality, financial depth, and economic growth nexus in China. The World Economy, 43(2), 412-427.
- Kondrat, I., & Kots, O. (2018). Evaluating the Nexus between Financial Deepening and Economic Growth: Evidence from Ukraine. Nauki o Finansach, 23(1), 49-64.
- Kremen, V., & Semenog, A. (2013). Naukovo-metodychni zasady zabezpechennia rozvytku finansovoho sektoru Ukrainy [Scientific and methodological foundations for ensuring the development of Ukraine’s financial sector]. Visnyk Universitetu bankivskoi spravy Natsionalnoho banku Ukrainy – Bulletin of the University of Banking of the National Bank of Ukraine, 2(1), 29-33. (In Ukrainian).
- Law, S. H., & Singh, N. (2014). Does too much finance harm economic growth? Journal of Banking and Finance, 41, 36-44.
- Le, Q., Ho, H, & Vu, T. (2019). Financial depth and economic growth: Empirical evidence from ASEAN +3 countries. Management Science Letters, 9(6), 851-864.
- Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688-727.
- Liang, H.-Y., & Reichert, A. (2006) The Relationship Between Economic Growth and Banking Sector Development. Banks and Banking Systems, 1(2), 19-35.
- Lucas, R. E. (1998). On the Mechanics of Economic Development. Journal of Monetary Economy, 22(1), 3-42.
- Okafor, I. G., Onwumere, J. U. J., & Chijindu, E. H. (2016). Financial deepening indicators and economic growth in Nigeria: a causality and impact analysis. Asian Journal of Economics, Business and Accounting, 1(2), 1-11.
- Polemis, M. L., Stegnos, T., & Tzeremes, N. (2020). Revisiting the impact of financial depth on growth: A semi-parametric approach. Finance Research Letters, 36, 101322.
- Robinson, J. (1952). The Generalization of the General Theory. The rate of interest, and other essays. London: Macmillan.
- Rousseau, P., & Wachtel, P. (2005). Economic Growth and Financial Depth: Is the Relationship Extinct Already?
- Rousseau, P., & Wachtel, P. (2011). What is happening to the impact of financial deepening on economic growth? Economic Inquiry, 49(1), 276-288.
- Sahay, R., Čihák, M., N’Diaye, P., Barajas, A., Bi, R., Ayala, D., Gao, Y., Kyobe, A., Nguyen, L., Saborowski, C., Sviridzenka, K., & Yousefi, S. R. (2015). Rethinking financial deepening: stability and growth in emerging markets (IMF Stuff discussion note, SDN/15/08).
- Saleem, A., Sadi, J., & Setiawan, B. (2021). Islamic Financial Depth, Financial Intermediation, and Sustainable Economic Growth: ARDL Approach. Economies, 9(2), 49.
- Stolbov, M. (2017). Causality between credit depth and economic growth: evidence from 24 OECD countries. Empirical Economics, 53(2), 493-524.
- Türsoy, T., & Faisal, F. (2018) Does financial depth impact economic growth in North Cyprus? Financial Innovations, 4, 12.
-
Impact on poverty and income inequality in Malaysia’s economic growth
Rabiul Islam 
,
Ahmad Bashawir Abdul Ghani ,
Irwanshah Zainal Abidin ,
Jeya Malar Rayaiappan
doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05
Problems and Perspectives in Management Volume 15, 2017 Issue #1 pp. 55-62 Views: 12034 Downloads: 5744 TO CITE АНОТАЦІЯPoverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality definitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia together with government intervention to develop Malaysia’s economic growth. The research is focused among the working people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of poverty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from government and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-income group of people.
-
Impact of inflation on economic growth: evidence from Nigeria
Anthony Olugbenga Adaramola ,
Oluwabunmi Dada
doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
Investment Management and Financial Innovations Volume 17, 2020 Issue #2 pp. 1-13 Views: 9343 Downloads: 5623 TO CITE АНОТАЦІЯIn an attempt to examine the influence of inflation on the growth prospects of the Nigerian economy, the study employs the autoregressive distributed lag on the selected variables, i.e. real gross domestic product (GDP), inflation rate, interest rate, exchange rate, degree of economy`s openness, money supply, and government consumption expenditures for the period 1980–2018. The study findings indicate that inflation and real exchange rate exert a significant negative impact on economic growth, while interest rate and money supply indicate a positive and significant impact on economic growth. Other variables in the model depict no influence on the economic growth of Nigeria. The causality result shows the unidirectional relationships between interest rate, exchange rate, government consumption expenditures and gross domestic product. However, inflation and the degree of openness show no causal relationship with gross domestic product. As a result, the study recommends that a more pragmatic effort is needed by the monetary authorities to target the inflation vigorously to prevent its adverse effect by ensuring a tolerable rate that would stimulate the economic growth of Nigeria.
-
Formalization of the impact of imbalances in the movement of financial resources on economic growth of countries in Central and Eastern Europe
Serhiy Kozmenko ,
Maxim Korneyev
doi: http://dx.doi.org/10.21511/afc.01(1).2017.06
Accounting and Financial Control Volume 1, 2017 Issue #1 pp. 48-58 Views: 7970 Downloads: 1381 TO CITEThe article deals with the impact of financialization on economic growth in countries of Central and Eastern Europe. It determinesthe impact of imbalances in the movement of financial resources caused by financialization on economic growth of these countries. It proves that the implementation of measures aimed at increasing the openness of the economy and maintaining solvent demand have a positive impact on economic growth of the surveyed countries in the long run. It also proves the importance of developing a set of measures of strategic nature regulating imbalances in the movement of financial resources caused by financialization.
