Development of banking sector and economic growth: the ARF experience

• DOI: 10.1007/s40622-014-0056-y
• Publication Date: 2014-07-17T12:01:12Z
• Authors: Rudra P. Pradhan; Sasikanta Tripathy; Debaleena Chatterjee; Danish B. Zaki; Bidisha Mukhopadhyay
• Keywords: Causality; Sustainable Growth Rate; Economic expansion

The paper examines the long-run relationship between banking sector development and economic growth in 25 ARF countries for the period 1960–2012. Using principal component analysis for the construction of development index and vector auto-regressive model for testing the Granger causalities, the study finds the presence of both unidirectional and bidirectional causality between banking sector development and economic growth. The policy implication of this study is that the economic policies should recognize the differences in the banking sector development and economic growth in order to maintain sustainable development in the 25 ARF countries.