The impact of commercial banking development on economic growth: a principal component analysis of association between banking industry and economic growth in Eastern Europe

Shahdad Naghshpour and Hugh L. Davis Iii

International Journal of Monetary Economics and Finance, 2018, vol. 11, issue 6, 525-542

Abstract: This paper identifies the relationship between commercial banking development and economic growth in Eastern Europe. The dataset includes 13 countries, 22 variables measuring banking development, and four control variables, from 2002 to 2015. The extensive number of variables reflect different dimensionalities of financial development. To resolve collinearity and to have a succinct model the principal component analysis is utilised. PC regression is used to qualify significant components that are in turn utilised to specify a model. The results of the regression support the role of banking access components in economic growth. This study concludes that there is a significant relationship between commercial banking development and economic growth for Eastern Europe. More specifically, policies that liberalise banking to include more branches and ATMs, thus creating greater access, could spur greater growth in emerging economies like those of Eastern Europe.

Keywords: banking; financial development; Eastern Europe; economic growth; principal component. (search for similar items in EconPapers)
Date: 2018
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