Does banking sector development promote economic growth? An empirical analysis for selected countries in Central and South Eastern Europe

Abstract

Economic growth is one of the ultimate goals of any economic system. This article examines the question whether in 16 transition economies from Central and South Eastern Europe the banking sector influences economic growth. The empirical investigation was carried out using a generalised method of moments (GMM) dynamic panel method. We measure the development in the banking sector using the bank credit to the private sector, interest rates, and ratio of quasi money (RQM). The research results show that credit to the private sector and interest margin (IM) are negatively related to the economic growth, while RQM is positively related to economic growth.

Keywords:

• banking sector development
• economic growth
• Central and South Eastern Europe

JEL Classification:

• E44
• E58
• G21