Banks' performance and economic growth in India: A panel cointegration analysis

The banking sector plays a crucial role in the economic growth of a nation. The purpose of this study is to examine the long-term association between banks' performance and the economic growth of a developing economy: India. The study used a panel of data of 20 public sector banks for the perio...

Full description

Saved in:
Bibliographic Details
Published in:Economies 2021-03, Vol.9 (1), p.1-13
Main Authors: Alam, Md Shabbir, Rabbani, Mustafa Raza, Tausif, Mohammad Rumzi, Abey, Joji
Format: Article
Language:English
Subjects:
bank investment
bank performance
Banking industry
Banks
Causality
Diversification
Economic development
Economic growth
Financial institutions
Financial services
GDP
Generalized method of moments
Gross Domestic Product
Growth models
India
Innovations
Interest rates
Literature reviews
panel cointegration
return on assets
Variables
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The banking sector plays a crucial role in the economic growth of a nation. The purpose of this study is to examine the long-term association between banks' performance and the economic growth of a developing economy: India. The study used a panel of data of 20 public sector banks for the period 2009 to 2019. It applied the Pedroni and Kao test of co-integration, panel vector error correction model (VECM) dynamic, panel fully-modified ordinary least squires OLS (FMOLS), and dynamic OLS (DOLS) to estimate the relationship of interest margin return on assets, bank investment, and lending capacity of the bank with gross domestic product (GDP) of the country. The identification and incorporation of these bank-related variables are the innovations of this study. The results indicate that the bank-related variables are co-integrated with economic growth. Further analysis indicates a significant relationship between interest margin and return on assets with economic growth. In addition, lending capacity and investment activities are not significantly associated with economic growth, leading to the policy recommendation to improve upon these two factors in order to achieve higher growth rates.
ISSN:2227-7099
2227-7099
DOI:10.3390/economies9010038