Banking system stability and economic sustainability: A panel data analysis of the effect of banking system stability on sustainability of some selected developing countries

Albert Henry Ntarmah; Yusheng Kong; Michael Kobina Gyan; Albert Henry Ntarmah; Yusheng Kong; Michael Kobina Gyan

doi:10.3934/QFE.2019.4.709

Quantitative Finance and Economics

2019, Volume 3, Issue 4: 709-738. doi: 10.3934/QFE.2019.4.709

Previous Article Next Article

Research article

Banking system stability and economic sustainability: A panel data analysis of the effect of banking system stability on sustainability of some selected developing countries

1.
School of Finance and Economics, Jiangsu University, Zhenjiang, Jiangsu, 212013, P. R. China
2.
School of Management, Jiangsu University, Zhenjiang, Jiangsu, 212013, P. R. China

Received: 06 October 2019 Accepted: 28 November 2019 Published: 03 December 2019
JEL Codes: O5

The study investigated the effects of banking system stability on economic sustainability from the perspective of 37 developing economies for the period 2000-2016. The study applied panel data models precisely fixed effects and random effects models. Hausman test of endogeneity revealed fixed effects model as the most appropriate in all estimations. Our empirical analysis revealed the following key findings: First, the study revealed that banking system z-scores has positive effect on economic sustainability of developing economies while banking system regulatory capital and bank credit have negative effects on economic sustainability among selected developing economies. Second, while banking system z-scores, bank liquid assets and bank credit have positive effects on economic sustainability of BRICS economies, bank liquid assets and bank credit have negative effects on economic sustainability of non-BRICS economies except banking system zscores, which has a positive effect. In addition, banking system z-scores has positive effect on economic sustainability of Asian and non-Asian economies. However, non-performing loans and bank credit has negative effects on economic sustainability of Asian economies while banking system regulatory capital has negative effect on economic sustainability of non-Asian economies. We conclude that banking system stability play a role in economic sustainability developing economies. However, banking system stability has differing effects on economic sustainability of BRICS and non-BRICS economies; and Asian and non-Asian economies.
- economic sustainability,
- Adjusted Net Savings rate,
- GDP per capita,
- banking system stability,
- developing economies
Citation: Albert Henry Ntarmah, Yusheng Kong, Michael Kobina Gyan. Banking system stability and economic sustainability: A panel data analysis of the effect of banking system stability on sustainability of some selected developing countries[J]. Quantitative Finance and Economics, 2019, 3(4): 709-738. doi: 10.3934/QFE.2019.4.709

Related Papers:

Abstract

The study investigated the effects of banking system stability on economic sustainability from the perspective of 37 developing economies for the period 2000-2016. The study applied panel data models precisely fixed effects and random effects models. Hausman test of endogeneity revealed fixed effects model as the most appropriate in all estimations. Our empirical analysis revealed the following key findings: First, the study revealed that banking system z-scores has positive effect on economic sustainability of developing economies while banking system regulatory capital and bank credit have negative effects on economic sustainability among selected developing economies. Second, while banking system z-scores, bank liquid assets and bank credit have positive effects on economic sustainability of BRICS economies, bank liquid assets and bank credit have negative effects on economic sustainability of non-BRICS economies except banking system zscores, which has a positive effect. In addition, banking system z-scores has positive effect on economic sustainability of Asian and non-Asian economies. However, non-performing loans and bank credit has negative effects on economic sustainability of Asian economies while banking system regulatory capital has negative effect on economic sustainability of non-Asian economies. We conclude that banking system stability play a role in economic sustainability developing economies. However, banking system stability has differing effects on economic sustainability of BRICS and non-BRICS economies; and Asian and non-Asian economies.

References

[1]	Al-Moulani A, Constantinos A (2017) Banking sector depth and economic growth nexus: a comparative study between the natural resource-based and the rest of the world's economies, International. Rev Appl Econ 31: 625-650. DOI:10.1080/02692171.2017.1299115 doi: 10.1080/02692171.2017.1299115
[2]	Alexander K (2014) Stability and Sustainability in Banking Reform: are environmental risks missing in Basel III. CISL & UNEPFI: Cambridge and Geneva.
[3]	Aluko OA, Ajayi MA (2018) Determinants of banking sector development: Evidence from Sub-Saharan African countries. Borsa Istanbul Rev 18: 122-139. doi: 10.1016/j.bir.2017.11.002
[4]	Arcand JL, Berkes E, Panizza U (2012) Too much finance? IMF Working Paper, No. 12/161, Washington DC: IMF.
[5]	Azeez BA, Oke MO (2012) A Time Series Analysis on the Effect of Banking Reforms on Nigeria's Economic Growth. Int J Econ Res 3: 26-37.
[6]	Baltagi BH (2005) Econometric Analysis of Data Panel, England: John Wiley & Sons Ltd.
[7]	Bolt K, Matete M, Clemens M (2002) Manual for calculating adjusted net savings. Environ Department World Bank, 1-23.
[8]	Bryman A, Bell E (2015) Business research methods, Oxford University Press, USA.
[9]	Demetriades PO, Rousseau PL (2016) The changing face of financial development. Econ Lett 141: 87-90. doi: 10.1016/j.econlet.2016.02.009
[10]	Charfeddine L, Ben Khediri K (2016) Financial development and environmental quality in UAE: Cointegration with structural breaks. Renew Sust Energy Rev 55: 1322-1335. doi: 10.1016/j.rser.2015.07.059
[11]	Demirgüç-Kunt A, Detragiache E (1999) The determinants of banking crises: evidence from industrial and developing countries, The World Bank.
[12]	Demirgüç-Kunt A, Detragiache E (2005) Cross-country empirical studies of systemic bank distress: a survey, The World Bank.
[13]	Ferreira S, Vincent JR (2005) Genuine savings: leading indicator of sustainable development?. Econ Dev Cult Change 53: 737-754. doi: 10.1086/426834
[14]	Ferreira S, Hamilton K, Vincent JR (2008) Comprehensive wealth and future consumption: accounting for population growth. World Bank Econ Rev 22: 233-248. doi: 10.1093/wber/lhn008
[15]	Genberg H (2017) Global shocks and risk to financial stability in Asia (No. 709). ADBI Working Paper Series.
[16]	Hamilton K (2006) Where is the wealth of nations?: measuring capital for the 21st century, World Bank Publications.
[17]	Hanley N, Dupuy L, McLaughlin E (2015) Genuine savings and sustainability. J Econ Surv 29: 779-806. doi: 10.1111/joes.12120
[18]	Jacobs LM, Van Rossem R (2014) The BRIC Phantom: A comparative analysis of the BRICs as a category of rising powers. J Policy Model 36: S47-S66. doi: 10.1016/j.jpolmod.2013.10.008
[19]	Jayakumar M, Pradhan RP, Dash S, et al. (2018) Banking competition, banking stability, and economic growth: Are feedback effects at work? J Econ Bus 96: 15-41. doi: 10.1016/j.jeconbus.2017.12.004
[20]	Jiang B (2014) Financial stability of banking system in China, Doctoral dissertation, Nottingham Trent University.
[21]	Jokipii T, Monnin P (2013) The impact of banking sector stability on the real economy. J Int Money Financ 32: 1-16. doi: 10.1016/j.jimonfin.2012.02.008
[22]	Jung JY (2008) Regional financial cooperation in Asia: challenges and path to development. Press & Commun CH 4002 Basel Switzerland, 120.
[23]	Kaminsky GL, Reinhart CM (1999) The twin crises: the causes of banking and balance-of-payments problems. Am Econ Rev 89: 473-500. doi: 10.1257/aer.89.3.473
[24]	Kregel J (2009) The global crisis and the implications for developing countries and the BRICs: Is the "B" really justified? Braz J Polit Econ 29: 341-356. doi: 10.1590/S0101-31572009000400002
[25]	Moundigbaye M, Rea WS, Reed WR (2017) Which panel data estimator should I use?: A corrigendum and extension. Economics Discussion Papers, No 2017-58. Kiel Inst World Econ 2.
[26]	Mhadhbi K (2014) Financial development and economic growth: A dynamic panel data analysis. Int J Econ Financ Manage 2: 48-58.
[27]	Murphy P, Waygood S, Wilson G (2017) Ideas for Action for a Long-Term and Sustainable Financial System. Bus Sustainable Dev Comm.
[28]	Narayan PK, Narayan S (2013) The short-run relationship between the financial system and economic growth: New evidence from regional panels. Int Rev Financ Anal 29: 70-78. doi: 10.1016/j.irfa.2013.03.012
[29]	Pardi F, Salleh AM, Nawi AS (2015) Determinants of Sustainable Development in Malaysia: A VECM Approach of Short-Run and Long-Run Relationships. Am J Econ 5: 269-277.
[30]	Pazarbasioglu C, Johnsen G, Hilbers MPLC, et al. (2005) Assessing and managing rapid credit growth and the role of supervisory and prudential policies (No. 5-151), International Monetary Fund.
[31]	Pearce DW, Atkinson GD (1993) Capital theory and the measurement of sustainable development: an indicator of "weak" sustainability. Ecol Econ 8: 103. doi: 10.1016/0921-8009(93)90039-9
[32]	Pillarisetti JR (2005) The World Bank's 'genuine savings' measure and sustainability. Ecol Econ 55: 599-609. doi: 10.1016/j.ecolecon.2005.01.018
[33]	Pradhan RP, Arvin MB, Nair M, et al. (2019) Inter-linkages between competition and stabilisation policies in the banking sector and stock market development in Europe. Appl Econ 51: 4313-4324. doi: 10.1080/00036846.2019.1591603
[34]	Rahman MM, Ashraf BN, Zheng C, et al. (2017) Impact of Cost Efficiency on Bank Capital and the Cost of Financial Intermediation: Evidence from BRICS Countries. Int J Financ Stud 5: 32. doi: 10.3390/ijfs5040032
[35]	Schmidt-Traub G, Shah A (2015) Investment needs to achieve the Sustainable Development Goals. Paris New York Sustainable Dev Solutions Network.
[36]	Sen S (2016) The BRICS Initiatives Towards a New Financial Architecture: An Assessment with Some Proposals (No. 205). RIS Discussion Paper.
[37]	Solow RM (1956) A Contribution to the Theory of Economic Growth. Q J Econ 70: 65-94. doi: 10.2307/1884513
[38]	Stewart R, Chowdhury M (2019) Does Bank Stability Promote Economic Resilience?: Evidence From Panel Data. Evidence From Panel Data.
[39]	TheGlobalEconomy.com (2019) Business and economic data for 200 countries. Available from https://www.theglobaleconomy.com/indicators_list.php.
[40]	Tongurai J, Vithessonthi C (2018) The impact of the banking sector on economic structure and growth. Int Rev Financ Anal 56: 193-207. doi: 10.1016/j.irfa.2018.01.002
[41]	Tripathy R (2019) Doe measure of financial development matter for economic growth in India? Quant Financ Econ 3: 508-525. doi: 10.3934/QFE.2019.3.508
[42]	World Bank (2012) Contribution to Beyond GDP, "Virtual Indicator Expo", Washington DC: World Bank.
[43]	World Bank (2019) Economic research data. Retrieved from FRED, Federal Reserve Bank of St. Louis. [dataset for banking system stability] Available from: https://fred.stlouisfed.org/series.
[44]	World Bank Group (2019) World Development Indicators 2019, Washington DC: World Bank. [dataset for economic sustainability and other determinants].
[45]	Wyman O (2015) Post-Crisis Changes in the Stability of the US Banking System Evidence from US Bank Holding Companies from 2004 to 2014, NY 10036: New York.
[46]	Yaffee R (2003) A primer for panel data analysis. Connect: Information Technology at NYU, 1-11.
[47]	Younsi M, Bechtini M (2018) Economic Growth, Financial Development and Income Inequality in BRICS Countries: Evidence from Panel Granger Causality Tests. Available from: https://mpra.ub.uni-muenchen.de/85182/.

Reader Comments

Your name:*

Email:*
© 2019 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)