The impact of banking sector development on economic growth: Comparative analysis of Ukraine and some EU countries

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The effective functioning of the banking sector has a key impact on the stability of economic growth. The study is aimed at monitoring the banking sector development and identifying causality between the banking sector and economic growth. The methodological tools of the research are Principal component analysis, causal relationship, and vector regression modeling. The empirical study is based on the World Bank databank by eight components (for integral analysis) and seven indicators (for causality analysis). The study presents an improved algorithm for monitoring the level of banking sector development based on calculating the integral coefficient. According to assessment, the level of banking sector development and realization of its potential in Ukraine is low and significantly inferior to the EU countries; in 2000–2019, the development of the banking sector in Ukraine was 0.061-0.153. The results obtained confirmed the large discrepancy in the development of Ukraine’s banking sector with some EU countries (the highest lag values were observed with the Czech Republic and Poland). The causality analysis revealed a strong favorable relationship between the level of development of the banking sector in Ukraine and GDP per capita (0.796), a moderate one – with foreign direct investment (0.400), and a reverse relationship with the level of national poverty (0.678). This study is of practical value for identifying two possible trajectories of a country’s development, namely, sustainable development and economic turbulence, and has allowed forming a conceptual vision of the role of the banking sector in achieving social and economic goals.

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    • Figure 1. Conceptual vision of the banking sector’s place and role in ensuring strategic sustainable economic development
    • Table 1. Weight coefficients of indicators of banking sector development indices in some EU countries, Switzerland, and Ukraine, %
    • Table 2. Integral coefficients of the banking sector development of some EU countries, Switzerland, and Ukraine, 2000–2019
    • Table 3. The strength of the link between the level of the banking sector development and the parameters of social and economic development in some EU countries, Switzerland, and Ukraine, 2000–2019.
    • Table 4. Mutual causality of parameters of economic growth and the banking sector development of some EU countries, 2000–2019
    • Table 5. Mutual causality of parameters of economic growth and the banking sector development of Ukraine and Switzerland, 2000–2019
    • Table 6. Empirical assessments of the impact of the banking sector on the social and economic development of some EU countries, Switzerland, and Ukraine
    • Table 7. Indicators of the significance of econometric research (vector regression modeling) of the banking sector’s impact on the socio-economic development of some EU countries, Switzerland, and Ukraine
    • Table A1. Weighted coefficients of indicators of the banking sector development of some EU countries, Switzerland, and Ukraine, 2000–2019
    • Conceptualization
      Nadiya Rushchyshyn, Taras Vasyltsiv
    • Data curation
      Nadiya Rushchyshyn, Olha Mulska
    • Formal Analysis
      Nadiya Rushchyshyn, Olha Mulska
    • Funding acquisition
      Nadiya Rushchyshyn
    • Software
      Nadiya Rushchyshyn, Olha Mulska, Yuliia Nikolchuk, Mariia Rushchyshyn
    • Validation
      Nadiya Rushchyshyn, Taras Vasyltsiv
    • Writing – original draft
      Nadiya Rushchyshyn
    • Methodology
      Olha Mulska
    • Investigation
      Yuliia Nikolchuk
    • Project administration
      Yuliia Nikolchuk
    • Resources
      Mariia Rushchyshyn
    • Visualization
      Mariia Rushchyshyn
    • Writing – review & editing
      Mariia Rushchyshyn, Taras Vasyltsiv
    • Supervision
      Taras Vasyltsiv