Will banking development result in economic growth? evidence from the Philippines
Date
2019-11
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Abstract
This paper provides empirical evidence on whether banking development results in economic growth in the case of the Philippines. It also examines the effects of banking development on investment and productivity growth, which we consider to be the channels to economic growth. Moreover, the magnitude of the impact of banking development on the economic sectors is also examined. We use vector autoregression and 'innovation accounting’, a method that includes forecast error variance decomposition and impulse response functions, to estimate the time-series data from 1989 to 2018.Results show that banking development does not seem to have an impact on economic growth, and this is true for all sectors except for the industrial sector. Banking development only weakly affects investment and productivity. Instead, there is substantial evidence based on the same method that the direction of possible causality runs from economic growth to banking development.
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Keywords
banking development, economic growth, Philippines