Impact of Commercial Bank Development on Economic Performance in the Selected G7 and African Countries

Abstract

To examine the impact of commercial bank development on economic growth, adopting panel autoregressive distributed lag model (P-ARDL). Thus, we used bank credit to the private sector, domestic credit to the private sector, financial deepening, bank deposit and lending rate to measure the commercial bank development while we used control of corruption, regulatory quality, rule of law and government effectiveness to account for governance and regulatory quality, and we controlled for the influence of the macroeconomic variables by including current account balance, exchange rate, inflation rate and personal income in the model. To account for growth, we used gross domestic product per capita to measure the economic growth. We employed time series data spanning from the period of 1996 to 2018. The result reveals that commercial bank development has a significant positive impact on economic growth. From our findings, there is the positive long-run relationship between bank credit to the private sector and economic growth suggesting that commercial bank development leads to economic growth. This indicates that banking industry development tends to improve the productive capacity of G7 and African economies as in the case of supply leading hypothesis. However, poor government effectiveness, regulatory quality, role of law and control of corruption destroys the growth of commercial banks especially as its evidential in our findings in Africa, therefore Governments are advised to seek for policies that minimizes corruption, promotes government effectiveness and regulatory quality.