2018, Volume 71 - Issue 3
RSS feed citation: At RePEc
Publication date: 03 August 2018
IL FUTURO DELL'EUROPA: PROSPETTIVE ECONOMICHE E SOCIALI - WELCOME ADDRESSRead the article
WHY A EUROZONE COLLAPSE SHOULD NOT BE A SURPRISE: THE ROLE OF GERMANY AND GREECERead the article
FINANCIAL CRISIS, BANKING SECTOR PERFORMANCE AND ECONOMIC GROWTH IN THE EUROPEAN UNIONRead the article
FIXING THE EUROZONE SETUP: ON VIABLE FORMS OF FISCAL UNIONRead the article
AMONG THE CENTRAL AND EASTERN EUROPEAN COUNTRIES OF THE EUROPEAN UNION, WHO GAINED AND WHO LOST?Read the article
Cândida FERREIRA, Lisbon School of Economics and Management, Universidade de Lisboa and UECE – Research Unit in Complexity and Economics, Lisboa, Portugal
This paper uses static and dynamic panel estimates in a sample including all 28 European Union countries during the last decade and provides empirical evidence on the important role that well-functioning EU banking institutions can play in promoting economic growth. The banking sector performance is proxied by the evolution of some relevant financial ratios and economic growth is represented by the annual Gross Domestic Product growth rate. In order to analyse the possible differences arising after the outbreak of the recent international financial crisis, the estimations consider two panels: one for the time period 1998-2012 and another for the subinterval 2007-2012. The results obtained allow us to confirm the importance of the variation of the different operational, capital, liquidity and assets quality financial ratios to economic growth. More precisely, we concluded that in the universe of the EU member states, for the interval including the years before and after the financial crisis (1998-2012), the variations of the Return on Average Assets, the Equity to Total Assets Ratio, the Debt to Equity Ratio, the Equity to Liabilities Ratio and the Net Loans to Total Deposits Ratio grew in line with the GDP growth rate; while the evolution of the Net Interest Margin, the Cost to Income Ratio and the Impaired Loans to Gross Loans Ratio was opposite to the GDP growth. However, considering only the years after the crisis (2007-2012), the variation of the Net Interest Margin was in line with the GDP while the variations of the Equity to Total Assets Ratio and the Equity to Liabilities Ratio contrast the GDP growth rate. These differences between the two considered time panels reflect the reactions of the European banking institutions to the recent financial crisis, as they, in general, adopted a less risky performance and decided to give particular emphasis to the traditional banking activities: receiving deposits and providing credit to finance the productive investment, in order to promote economic growth.
F30, F40, G20, G30, O40
Bank Performance, Economic Growth, European Union, Financial Crisis, Panel Estimates
Abdelhafidh, S. (2013), “Potential Financing Sources of Investment and Economic Growth in North African Countries: A Causality Analysis”, Journal of Policy Modeling, 35(1), 150-169.
Arellano, M. and S. Bond (1991), “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations”, The Review of Economic Studies, 58(2), 277-297.
Arellano, M. and O. Bover (1995), “Another Look at the Instrumental-Variable Estimation of Error-Components Model”, Journal of Econometrics, 68(1), 29-52.
Ayadi, R., E. Arbak, S. Ben-Naceur and W.P. De Groen (2013), “Financial Development, Bank Efficiency and Economic Growth across the Mediterranean”, European Commission, European Research Area, WP 6 – Financial Services and Capital Markets; MEDPRO Technical Report No 30.
Bangake, C. and J. Eggoh (2011), “Further Evidence on Finance-Growth Causality: A Panel Data Analysis”, Economic Systems, 35(2),176-188.
Beck, T., A. Demirgüç-Kunt and R. Levine (2000), “A New Database on Financial Development and Structure”, World Bank Economic Review, 14(3), 597-605.
Beck, T., A. Demirgüç-Kunt and R. Levine (2004), “Finance, Inequality and Poverty: Cross-Country Evidence”, World Bank Policy Research Working Paper No. 3338.
Bencivenga, V., B. Smith and R. Starr (1995), “Transaction Costs, Technological Choice and Endogenous Growth”, Journal of Economic Theory, 67, 53-117.
Berthelemy, J.C. and A. Varoudakis (1996), “Economic Growth, Convergence Clubs, and the Role of Financial Development”, Oxford Economic Papers, 48(2), 300-328.
Bhide, A. (1993), “The Hidden Costs of Stock Market Liquidity”, Journal of Financial Economics, 34(1), 1-51.
Blundell, R. and S. Bond (1998), “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models”, Journal of Econometrics, 87(1), 115-143.
Bond, S. (2002), “Dynamic Panel Data Models: A Guide to Micro Data Methods and Practice”, Working Paper CWP09/02, Institute for Fiscal Studies: London.
Calderón, C. and L. Liu (2003), “The Direction of Causality between Financial Development and Economic Growth”, Journal of Development Economics, 72(1), 321-334.
Cecchetti, S. and E. Kharroubi (2012), “Reassessing the Impact of Finance on Growth”, Bank for International Settlements, Working Paper No. 381.
Dell’Ariccia, G., E. Detragiache and R. Rajan (2008), “The Real Effect of Banking Crises”, Journal of Financial Intermediation, 17(1), 89-112.
Demetriades, P. and K. Hussein (1996), “Does Financial Development Cause Economic Growth? Time Series Evidence from 16 Countries”, Journal of Development Economics, 51(2), 387-411.
Demirguç-Kunt, A. and R. Levine (1999), “Bank-Based and Market-Based Financial Systems: Cross Country Comparisons”, World Bank, Policy Research Working WPS 2143.
Ferreira, C. (2008), “The Banking Sector, Economic Growth and European Integration”, Journal of Economic Studies, 35(6), 512-527.
Ferreira, C. (2016), “Does Bank Performance Contribute to Economic Growth in the European Union?”, Comparative Economic Studies, 58(2), 174-195.
Gaytan, A. and R. Rancière (2004), “Wealth, Financial Intermediation and Growth”, Departments of Economics and Business, Universitat Pompeu Fabra, Economics Working Papers No. 851.
Greenwood, J. and B. Smith (1997), “Financial Markets in Development, and the Development of Financial Markets”, Journal of Economic Dynamics and Control, 21(1), 145-181.
Greenwood, J., J.M. Sanchez and C. Wang (2010), “Financing Development: The Role of Information Costs”, American Economic Review, 100(4), 1875-1891.
Greenwood, J., J.M. Sanchez and C. Wang (2013), “Quantifying the Impact of Financial Development on Economic Development”, Review of Economic Dynamics, 16(1), 194-215.
Hasan, I., M. Koetter and M. Wedow (2009), “Regional Growth and Finance in Europe: Is there a Quality Effect of Bank Efficiency?”, Journal of Banking and Finance, 33(8), 1446-1453.
Hassan, M., B. Sanchez and J-S. Yu (2011), “Financial Development and Economic Growth: New Evidence from Panel Data”, The Quarterly Review of Economics and Finance, 51(1), 88-104.
Hausman, J.A. (1978), “Specification Tests in Econometrics”, Econometrica, 46(6), 1251-1271.
Kaminsky, G.L. and C. Reinhart (1999), “The Twin Crises: The Causes of Banking and Balance-of-Payments Problems”, American Economic Review, 89(3), 473-500.
Kar, M., S. Nazlioğlu and H. Ağır (2011), “Financial Development and Economic Growth Nexus in the MENA Countries: Bootstrap Panel Granger Causality Analysis”, Economic Modelling, 28(1-2), 685-693.
Khan, M.S. and A.S. Senhadji (2000), “Financial Development and Economic Growth: An Overview”, IMF Working Paper WP/00/209.
King, R. and R. Levine (1993-a), “Finance and Growth: Schumpeter Might be Right”, Quarterly Journal of Economics, 108(3), 717-737.
King, R. and R. Levine (1993-b), “Finance, Entrepreneurship and Growth: Theory and Evidence”, Journal of Monetary Economics, 32(3), 513-542.
Koetter, M. and M. Wedow (2010), “Finance and Growth in a Bank-Based Economy: Is it Quantity or Quality that Matters?”, Journal of International Money and Finance, 29(8), 1529-1545.
Laeven, L. and F. Valencia (2013), “The Real Effects of Financial Sector Interventions during Crises”, Journal of Money, Credit and Banking, 45(1), 147-177.
Laeven, L., D, Klingebiel and R. Krozner (2002), “Financial Crises, Financial Dependence, and Industry Growth”, World Bank, Policy Research Working Paper No. 2855.
Levin, A., C-F. Lin and C-S. Chu (2002), “Unit Root Tests in Panel Data: Asymptotic and Finite Sample Properties”, Journal of Econometrics, 108(1), 1-24.
Levine, R. and S. Zervos (1998), “Stock Markets, Banks and Economic Growth”, American Economic Review, 88(3), 537–558.
Loayza, N. V. and R. Rancière (2006), “Financial Development, Financial Fragility, and Growth”, Journal of Money, Credit and Banking, 38(4), 1051-1076.
Rajan, R. and L. Zingales (1998), “Financial Dependence and Growth”, American Economic Review, 88(3), 559-587.
Roodman, D. (2009), “A Note on the Theme of too Many Instruments”, Oxford Bulletin of Economics and Statistics, 71(1), 135-158.
Shan, J. (2005), “Does Financial Development ‘Lead’ Economic Growth? A Vector Auto-Regression Appraisal”, Applied Economics, 37(12), 1353-1367.
Shan, J., A. Morris and F. Sun (2001), “Financial Development and Economic Growth: An Egg–Chicken Problem?”, Review of International Economics, 9(3), 443-454.
Windmeijer, F. (2005), “A Finite Sample Correction for the Variance of Linear Efficient Two-Step GMM Estimators”, Journal of Econometrics, 126(1), 25-51.
Wooldridge, J.M. (2010), Econometric Analysis of Cross Section and Panel Data, MIT Press: Cambridge, MA.