Banking sector performance and economic growth: evidence from Southeast European countries

ABSTRACT

Using a dynamic panel generalized method of moments (GMM), this paper examines the dynamic impact of banking sector performance on economic growth in thirteen Southeast European countries over the period 2000–2015 by taking into account human capital, investment, and trade openness, among other factors. The main empirical finding suggests a positive and significant impact of banking sector performance on economic growth, which implies that banking efficiency is among the main determinants of overall economic growth. Further, the impact of investment, human capital, and trade openness is found to be positive and significant. The major policy recommendation is that the governments in the respective countries should foster their banking system because of its direct impact on economic growth.

KEYWORDS:

• Banking performance
• economic growth
• financial development
• generalized method of moments
• Southeast Europe

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. For recent studies on banking sector in general in transition economies, see, among others, Andrieş and Nistor (2018), Bonin and Louie (2017), Bucevska and Misheva (2017), Kapuściński (2017), Krstevska, Nenovski, and Kostovska (2017), and Toader, Onofrei, Popescu, and Andrieș (2018).