The Impact of the Development of the Bankıng Sector On Economic Growth: The Case of Mena Countries

Abstract

The purpose of this study is to analyze the impact of banking sector development on economic growth in the period of 1991-2017 for eight MENA countries. Credit to the private sector were used as an indicator of financial depth to represent the development of the banking sector. In this study, in which eight MENA countries are discussed, new generation panel data analysis was applied for the relationship between variables. In order to determine the long-term relationship between the development of the banking sector and growth, a horizontal cross-section dependency test was used first. Panel bootstrap cointegration test developed by Wester Lund and Edgerton (2007), which takes into account this situation by determining the dependency between horizontal sections, was used. According to the result obtained, it is seen that the development of the banking sector and economic growth act together in the long term. As a result of cointegration, the coefficients of the variables were analyzed with the Augmented Mean Group estimator. However, the homogeneity of the slope coefficients for the entire panel was determined using the delta test. A 1% increase in the banking sector in MENA countries has been found to increase economic growth by 0.66%. It is seen that the development and deepening of the banking sector in economic growth policies will play an effective role in achieving the goal. In this context, increasing financial access and efficiency is thought to support economic growth.