The impact of the financial system on economic growth in the context of the global crisis: empirical evidence for the EU and OECD countries

Abstract

This study aims to analyze the impact of the development and stability of the financial sector on economic growth on the basis of the quantitative methods that produce robust results. The following research hypotheses are tested: /H1/ The relationship between financial sector development (stability) and economic growth is nonlinear; /H2/ An excessively large size of the financial system does not lead to more rapid economic growth: it may even negatively affect GDP dynamics; /H3/ The inclusion of the post-crisis period gives new insights of the nature of the relationship between financial system and economic growth. The analysis covers the 28 EU and 34 OECD economies and the 1993-2013 period. The following variables are used to measure the financial sector: domestic credit provided by financial sector, bank nonperforming loans, bank capital to assets ratio, market capitalization of listed companies, turnover ratio of stocks traded, and the monetization ratio. A new element of the empirical analysis is the application of the extended econometric and economic modelling, including testing nonlinear relationships, analyzing both levels and changes of the financial variables, as well as estimating the models on the basis of a moving panel with overlapping observations. The regression equations are estimated by Blundell and Bond's GMM system estimator. Our results indicate that all the research hypotheses have been positively verified.

Effects of information sharing on banking credit and economic growth in developing countries: Evidence from the West African Economic and Monetary Union

“…This result in line with economic theory, which indicates that increased funding improves economic growth by augmenting the investment rate. This result is similar to those in transition and developed countries (Cojocaru, Falaris, Hoffman, & Miller, ; Prochniak & Wasiak, ). Indeed, Cojocaru et al () indicated that private credit positively influenced economic growth in the Central and Eastern Europe and the Commonwealth of Independent States countries.…”

“…Indeed, Cojocaru et al () indicated that private credit positively influenced economic growth in the Central and Eastern Europe and the Commonwealth of Independent States countries. As for Prochniak and Wasiak () study, it is apparent that the change in domestic credit is a significant factor of economic growth in the European Union countries.…”

“…The endogeneity test of Wu–Hausman indicates that economic growth variables and credit are potentially endogenous (see Tables and ). The equations to be estimated are as follows: Following Prochniak and Wasiak (), who estimated the nonlinear impact of the financial system on economic growth, the current study analyses the nonlinear relation between information sharing, credit level, and economic growth. Thus, the squared of information sharing variable is introduced in the credit and growth equations.…”

“…(2) Following Prochniak and Wasiak (2017), who estimated the nonlinear impact of the financial system on economic growth, the current study analyses the nonlinear relation between information sharing, credit level, and economic growth. Thus, the squared of information sharing variable is introduced in the credit and growth equations.…”

Causes of the Convergence Slowdown in the Countries of Central and Eastern Europe, 2008-2014

“…The ratio of domestic credit to private sector to GDP turned out to have a negative impact on the rate of growth of TFP. This means that the "too much finance" hypothesis may be valid for the countries of the Central and Eastern Europe (Próchniak, Wasiak [35]; Grabowski, Maciejczyk-Bujnowicz [15], [16]). …”