Banking system for enforcement of economic growth: theory and empirical relationship

Zherdetska Liliia
D.Sc. (Economics), Associate Professor, Head of the Banking Department, Odessa National Economic University, Odesa, Ukraine e-mail: : lzherdetska@gmail.com, ORCID ID: http://orcid.org/0000-0001-5398-868X

Tkach Victoriya
6th year student of the Faculty of Finance and Banking, Odessa National University of Economics, Odesa, Ukraine e-mail: : vicctorytkach@gmail.com, ORCID ID: http://orcid.org/0000-0001-5398-868X

Cite this article:

Zherdetska L., Tkach V. Banking system for enforcement of economic growth: theory and empirical relationship. Scientific Bulletin of the Odessa National Economic University. 2021. № 7-8 (284-285). pp. 33-46.

Abstract

Introduction. A number of global problems that exist within the country are much easier to solve with sustainable economic growth. It should be noted that the positive dynamics of the banking and financial spheres are favorable factors for ensuring balanced economic growth of the country. Because banking institutions perform the function of transforming borrowed funds into a long-term investment resource of economic growth. Purpose. The purpose of the study is to substantiate theoretical and empirical aspects of the role of the banking system in ensuring economic growth. Achieving the goal involves setting and solving the following tasks: substantiation of the directions of influence of the banking system on economic growth; analysis of empirical relationships between economic development and the banking sectoranalyze the empirical relationship between economic development and the banking sector Results. In the article, the directions of influence of the banking system on economic growth are substantiated. The first direction is realized through lending by commercial banks to non-financial corporations. The second direction is implemented due to the central bank's influence on the activities of commercial banks on the basis of the use of micro-, macroprudential and monetary policy instruments. Using the Granger test, a strong negative impact of the dynamics of the real sector of the economy on the dynamics of net assets of the banking system in the period 2017-2020 has been substantiated. It can be explained by the fact, that banks in this period began to pay more attention to investing in government securities instead of lending. This led to an increase in bank assets against the background of negative dynamics of the real sector of the economy. In other words, in modern conditions, the banking system does not make a positive contribution to economic growth. Conclusions. The main problems of activating the role of the banking system in ensuring economic growth have been formulated: monetary expansion is associated with inflationary risks and may have an ambiguous impact on financial stability; the standards of transparency of real sector entities lag behind the standards of the banking system. Overcoming high inflation and transparency of non-financial sector enterprises will help restore the positive role of the banking system in ensuring economic growth.

Keywords

economic growth, banks, real sector of Ukraine’s economy, Granger test, demand-following hypothesis, supply-leading hypothesis.

JEL classification: E520, E580, F430, G210 DOI: 10.32680/2409-9260-2021-7-8-284-285-33-46

УДК: 336.717

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