The Relationship Between Economic Growth and Banking Sector Development in Ukraine

The paper examines the relationship between economic growth and banking sector indicators in Ukraine. The constructed empirical model revealed a positive impact of bank deposits on real GDP growth. The causal relationships between economic growth in Ukraine and the performance of the banking sector are analyzed using the Granger Causality Test. It is established that banking deposits Granger-cause GDP, while banking credits do not, but GDP has an effect on banking credits. It is noted that the banking sector of Ukraine does not play a significant role in the redistribution of capital in the intersectoral and spatial dimensions. It is defined limiting factors of lending to the private sector and ways to increase the deposit base of banks.

RELATIONSHIP BETWEEN THE STOCK MARKET DEVELOPMENT, BANKING SECTOR DEVELOPMENT AND ECONOMIC GROWTH IN THE CEE COUNTRIES

The stock markets of most CEE countries have been actively developing and improving over the past decades but they still do not belong to the developed markets according to MSCI classification, the financial systems of these countries tends towards the bank-oriented type. Does the level of stock market development affect economic growth in CEE countries and do these countries need to develop their stock markets accordingly? The purpose of this article is to identify the direction of the causal link between stock market development, banking sector development and economic growth in Central and Eastern European (CEE) countries. The subject of the research is the relationship between the stock market development, banking sector development and economic growth in the CEE countries. Methodology. The research is based on the annual data for two time periods 1999-2012 and 1999-2015 for the 8 and 5 CEE countries, respectively. The study is based on the Granger causality test and linear regression models. According to results of the research the stock market development plays an important role in attracting foreign direct investment and economic growth in CEE countries in the long-run period. There are revealed the channels of indirect influence of the stock market capitalization on the economic growth. Stock market capitalization has impact on the banking sector and gross capital formation, which in turn have impact on the economic growth of CEE countries. There is the impact of both the stock market and the banking sector development on the economic growth in CEE countries during 1999-2015. However, the impact of the stock market size on the economic growth is positive and the impact of domestic credit to private sector is negative. Practical implications. The study proves the reasonable need for the CEE countries to move towards further development of the stock market, improving the market infrastructure and institutional environment in order to expand the size of the stock market and thereby contribute to the economic growth of this countries. Value/originality. The obtained conclusion about the role of the stock market in economic growth and attraction of FDI is of great importance both for Ukraine and other countries with similar trajectory of economic development in general and similar historical aspects of the origin of stock markets in particular and should be taken into account by state leaders when making decisions on the need to create conditions for development of such element of the country’s financial system as the stock market.

The impact of banking sector development on economic growth: Comparative analysis of Ukraine and some EU countries

The effective functioning of the banking sector has a key impact on the stability of economic growth. The study is aimed at monitoring the banking sector development and identifying causality between the banking sector and economic growth. The methodological tools of the research are Principal component analysis, causal relationship, and vector regression modeling. The empirical study is based on the World Bank databank by eight components (for integral analysis) and seven indicators (for causality analysis). The study presents an improved algorithm for monitoring the level of banking sector development based on calculating the integral coefficient. According to assessment, the level of banking sector development and realization of its potential in Ukraine is low and significantly inferior to the EU countries; in 2000–2019, the development of the banking sector in Ukraine was 0.061-0.153. The results obtained confirmed the large discrepancy in the development of Ukraine’s banking sector with some EU countries (the highest lag values were observed with the Czech Republic and Poland). The causality analysis revealed a strong favorable relationship between the level of development of the banking sector in Ukraine and GDP per capita (0.796), a moderate one – with foreign direct investment (0.400), and a reverse relationship with the level of national poverty (0.678). This study is of practical value for identifying two possible trajectories of a country’s development, namely, sustainable development and economic turbulence, and has allowed forming a conceptual vision of the role of the banking sector in achieving social and economic goals.

Do corporate financial flexibility, financial sector development and regulatory environment affect corporate investment decisions?

PurposeThis study aims to examine how corporate financial flexibility, financial sector development and the regulatory environment influence corporate investment decisions in an emerging economy after controlling for several macroeconomic factors.Design/methodology/approachThe authors estimated random-effects models to empirically examine the impacts of corporate financial flexibility, banking sector development, equity market development, regulatory quality and corruption on corporate investment decisions. The empirical analysis is based on an unbalanced annual panel data set of a sample of 198 non-financial firms listed on the Pakistan Stock Exchange for the period 1992–2018.FindingsThe results show that financially flexible firms tend to invest more. The increased banking sector development, stock market development and better regulatory quality play a pivotal role for enabling firms to increase their investment ability. However, the results reveal that corruption acts as a barrier and reduces corporate investments during the examined period. The results suggest that unused borrowing capacity is a good source of financial flexibility. These results strongly support the pecking order theory, which explains why firms incline toward internal sources for financing their investments and why they prefer debt to equity when go for external financing.Practical implicationsThe empirical findings of the study enable corporate managers to make better financing and investment decisions by understanding the significance of the attainment and maintenance of the corporate financial flexibility to enhance firm value. Furthermore, the findings enable corporate managers to examine and understand the role of banking sector development (BSD), equity market development (EMD), regulatory quality and the role of corruption in affecting corporate firms' investment ability, allowing them to make appropriate investment decisions, especially from an emerging economy perspective. The findings also help investors in making appropriate investment decisions while they are purchasing financial assets. Finally, the findings of the study have some implications for regulators as well. Specifically, the findings suggest that the authorities should implement economic and financial policies favoring banking sector as well as equity market development to enhance corporate investment.Originality/valueThe study significantly adds to the literature by examining the impact of financial flexibility, financial sector development and regulatory environment on corporate investment decisions. According to the authors' knowledge, the empirical evidence examining the impact of all of these factors on corporate investment is very scarce. Therefore, this study is an effort to fill the gap left in the literature.

Exploring the causality between economic growth, financial development and inflation in sixteen high-income countries

This paper examined the relationship between economic growth, inflation, stock market development, and banking sector development for a panel of sixteen high-income countries for the period from 2001 to 2016, by using the mechanism impulse response functions and Granger causality tests derived from a panel vector autoregressive model. The evidence of bidirectional causality between all variables in the model was found. Overall, feedback and supply-leading theories have been confirmed in the literature. A plus sign in the relationship between the development of the banking sector and the stock market with economic growth was found. Therefore, stock market development and banking sector development stimulate the economy.

Financial development and economic growth in SADC countries: a panel study

PurposeThe impact of financial development on economic growth has received considerable attention since the 2008/2009 global financial crisis. High levels of credit to the private sector were partly to blame for the crisis, and this has re-ignited the debate on whether the growth-enhancing effects of financial development outweigh the retarding effects associated with financial crises. This paper therefore examines the financial development–growth nexus in SADC countries during the period 1990–2015.Design/methodology/approachThe empirical analysis is conducted using the pooled mean group estimator. Furthermore, financial development indices are created due to the strong correlations between the individual financial development indicators using principal component analysis.FindingsThe results show that financial development, captured by the indices or the individual financial development indicators, has a negative impact on economic growth in the long term.Research limitations/implicationsDue to the unavailability of data, the study only focussed on banking sector development. The researcher would have preferred to incorporate stock market development.Practical implicationsDue to financial vulnerabilities emanating from an inadequate monitoring and supervisory framework, further enhancement of financial development should be undertaken with caution in SADC countries. Therefore, institutional quality should be enhanced in order for SADC countries to benefit from the development of the financial sector.Originality/valueMost studies investigating the financial development–growth nexus in SADC countries utilise the individual measures of financial development which often produce contradicting results. This study constructs financial development indices to capture the impact of various banking sector development indicators on growth.