How does banking sector development foster innovation? New empirical evidence from the Asia region

Umar Farooq, Mosab I. Tabash, Ebrahim Mohammed Al-Matari, Adeeb Alhebri and Zokir Mamadiyarov

International Journal of Development Issues, 2026, vol. 25, issue 1-2, 107-130

Abstract: PurposeThis study aims to examine the pivotal role of banking sector development (BSD) in shaping innovation performance across Asian economies.Design/methodology/approachThe analysis uses panel data from Asian economies spanning the period from 2000 to 2024. Key innovation indicators include research and development (R&D) expenditure intensity and the number of trademark applications. Advanced econometric techniques, i.e. system generalized method of moments, robust least squares and panel Granger causality models, are used to ensure robust empirical assessment.FindingsThe results indicate a positive and statistically significant relationship between BSD and innovation performance. Economic growth and remittance inflows also enhance innovation, whereas foreign direct investment inflows, inflation and real interest rates exert negative effects. The findings suggest that the banking sector plays a pivotal “grease the wheel” role in promoting innovation.Practical implicationsPolicymakers are advised to increase the share of bank lending dedicated to R&D and innovation-focused activities to bolster economic progress and global competitiveness.Originality/valueThis research offers novel empirical insights into the BSD–innovation nexus within the Asian context. It contributes to the literature by highlighting how financial sector dynamics shape innovation outcomes in developing and emerging economies.

Keywords: Asia; Banking sector development; Innovation; Research and development expenditures; Trademark applications (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijdipp:ijdi-11-2025-0282

DOI: 10.1108/IJDI-11-2025-0282

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