Relationship between banking sector development and inclusive growth


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According to an inclusive growth framework, the top objectives of the economic policy shift from increasing incomes themselves to well-being. While banking sector development has conventionally been considered a growth factor, there is no clear understanding of its impact on inclusive growth. This article explores how the banking sector’s qualitative development, measured in dimensions of the services availability, lending supply, stability, and reliability of banking activity, relates to inclusive growth. To define the relations between banking system development and inclusive growth, the panel regression was employed for a sample of 46 economies selected based on the prescribed principles of sources reputability, methodology consistency, limits in data blanks, and differentiated into groups according to the World Bank’s classification.
The regressions’ assessment and involved tests show evidence of the quality of constructed models and present the following results. The banking availability, approximated with the number of automated teller machines, fosters inclusive growth regarding all groups of countries. In contrast, the increase in the number of commercial banking branches has inverse relations between high-income and upper-middle-income countries, and direct for lower-middle-income countries. The bank credit expansion negatively influences the inclusive growth for high income and lower-middle-income countries. The banking sector stability approximated with bank capital to assets ratio matters in terms of inclusive growth for high-income countries only, while this indicator for upper middle and lower middle economies is statistically insignificant.

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    • Figure A1. Predictive margins with 95% for independent variable by groups
    • Table 1. List of independent variables
    • Table 2. Descriptive statistics
    • Table 3. Regression estimates
    • Table А1. The list of countries in the panel
    • Table А2. Breusch and Pagan Lagrange multiplier test for random effects and Sargan-Hansen statistic
    • Table А3. Jarque-Bera normality test
    • Table А4. Variance Inflation Factor (VIF) test for multicollinearity
    • Conceptualization
      Iryna Skliar, Svitlana Pokhylko
    • Data curation
      Iryna Skliar, Hanna Saltykova
    • Investigation
      Iryna Skliar, Hanna Saltykova, Svitlana Pokhylko, Nataliia Antoniuk
    • Writing – original draft
      Iryna Skliar, Hanna Saltykova, Svitlana Pokhylko, Nataliia Antoniuk
    • Writing – review & editing
      Iryna Skliar
    • Formal Analysis
      Hanna Saltykova, Svitlana Pokhylko
    • Visualization
      Nataliia Antoniuk