IDEAS home Printed from https://ideas.repec.org/a/nbp/nbpbik/v55y2024i2p181-200.html
   My bibliography  Save this article

Examining the relationship between bank profitability and economic growth: insights from Central and Eastern Europe

Author

Listed:
  • Jordan Kjosevski

    (University St. Kliment Ohridski – Bitola, Republic of Macedonia)

Abstract

In this research article, we delve into the influence of bank profitability on the economic growth of 16 countries in Central and Eastern Europe over the period spanning from 1999 to 2022. While low levels of bank profitability are often seen as a potential threat to economic growth, the question of whether higher profitability contributes positively to growth remains unanswered. Our extensive empirical analysis, utilizing various econometric methods, consistently reveals a statistically and economically significant positive relationship. Specifically, a one percent increase in the return on assets of banks is associated with a notable increase in economic growth, falling within the range of 0.575 to 0.603 percentage points. In addition to these significant findings, future research could delve deeper into the nuanced relationships between different dimensions of bank profitability and economic performance, including the effects of varying ownership structures and competition dynamics.

Suggested Citation

  • Jordan Kjosevski, 2024. "Examining the relationship between bank profitability and economic growth: insights from Central and Eastern Europe," Bank i Kredyt, Narodowy Bank Polski, vol. 55(2), pages 181-200.
    • Handle: RePEc:nbp:nbpbik:v:55:y:2024:i:2:p:181-200
    as

    Download full text from publisher

    File URL: https://bankikredyt.nbp.pl/content/2024/02/bik_02_2024_03.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    2. Athanasoglou, Panayiotis P. & Brissimis, Sophocles N. & Delis, Matthaios D., 2008. "Bank-specific, industry-specific and macroeconomic determinants of bank profitability," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 121-136, April.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    4. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    5. Klein, Paul-Olivier & Weill, Laurent, 2022. "Bank profitability and economic growth," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 183-199.
    6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    7. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
    8. Vos, Rob & Frenkel, Roberto & Ocampo, José Antonio & Palma, José Gabriel & Marfán, Manuel & Ros, Jaime & Taylor, Lance & Correa, Nelson & Cimoli, Mario, 2005. "Beyond Reforms: Structural Dynamics and Macroeconomic Vulnerability," IDB Publications (Books), Inter-American Development Bank, number 347, November.
    9. Giovanni S. F. Bruno, 2005. "Estimation and inference in dynamic unbalanced panel-data models with a small number of individuals," Stata Journal, StataCorp LP, vol. 5(4), pages 473-500, December.
    10. Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, number 9780198811633.
    11. William A. Brock & Steven N. Durlauf, 2001. "Growth Empirics and Reality," The World Bank Economic Review, World Bank, vol. 15(2), pages 229-22-272.
    12. Vijay Kumar & Ron Bird, 2020. "Do Profitable Banks Make a Positive Contribution to the Economy?," JRFM, MDPI, vol. 13(8), pages 1-18, July.
    13. José Antonio Ocampo, 2005. "Beyond Reforms : Structural Dynamics and Macroeconomic Vulnerability," World Bank Publications - Books, The World Bank Group, number 7378.
    14. repec:bla:obuest:v:61:y:1999:i:0:p:631-52 is not listed on IDEAS
    15. Ali Mirzaei & Zeynab Mirzaei, 2011. "Bank-specific and Macroeconomic Determinants of Profitability in Middle Eastern Banking," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 16(2), pages 101-128, spring.
    16. Charles Gore, 2007. "Which Growth Theory is Good for the Poor?," The European Journal of Development Research, Taylor and Francis Journals, vol. 19(1), pages 30-48.
    17. Jordan Kjosevski, 2013. "Banking Sector Development and Economic Growth in Central and Southeastern Europe Countries," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 19(4), pages 461-473, March.
    18. Nelson, Richard R & Winter, Sidney G, 1974. "Neoclassical vs. Evolutionary Theories of Economic Growth: Critique and Prospectus," Economic Journal, Royal Economic Society, vol. 84(336), pages 886-905, December.
    19. Cole, Rebel A. & Moshirian, Fariborz & Wu, Qiongbing, 2008. "Bank stock returns and economic growth," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 995-1007, June.
    20. Albertazzi, Ugo & Gambacorta, Leonardo, 2009. "Bank profitability and the business cycle," Journal of Financial Stability, Elsevier, vol. 5(4), pages 393-409, December.
    21. Yong Tan & Christos Floros, 2012. "Bank profitability and GDP growth in China: a note," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 10(3), pages 267-273, January.
    22. Chava, Sudheer & Oettl, Alexander & Subramanian, Ajay & Subramanian, Krishnamurthy V., 2013. "Banking deregulation and innovation," Journal of Financial Economics, Elsevier, vol. 109(3), pages 759-774.
    23. G. S. Maddala & Shaowen Wu, 1999. "A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 631-652, November.
    24. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    25. repec:idb:brikps:59518 is not listed on IDEAS
    26. Rob Vos & Roberto Frenkel & José Antonio Ocampo & José Gabriel Palma & Manuel Marfán & Jaime Ros & Lance Taylor & Nelson Correa & Mario Cimoli, 2005. "Beyond Reforms: Structural Dynamics and Macroeconomic Vulnerability," IDB Publications (Books), Inter-American Development Bank, number 59518 edited by José Antonio Ocampo, February.
    27. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Petreski, Marjan, 2009. "Analysis of exchange-rate regime effect on growth: theoretical channels and empirical evidence with panel data," Economics Discussion Papers 2009-49, Kiel Institute for the World Economy (IfW Kiel).
    2. Velisaria Matzana & Aikaterina Oikonomou & Michael Polemis, 2022. "Tourism Activity as an Engine of Growth: Lessons Learned from the European Union," JRFM, MDPI, vol. 15(4), pages 1-15, April.
    3. Thomas K.J. McDermott & Frank Barry & Richard S.J. Tol, 2014. "Disasters and development: natural disasters, credit constraints, and economic growth," Oxford Economic Papers, Oxford University Press, vol. 66(3), pages 750-773.
    4. Alali, Walid Y., 2010. "Impact of Institutions and Policy on Economic Growth: Empirical Evidence," MPRA Paper 115610, University Library of Munich, Germany.
    5. Thomas K.J. McDermott, "undated". "Disasters and Development: Natural Disasters, Credit Constraints and Economic Growth," The Institute for International Integration Studies Discussion Paper Series iiisdp363, IIIS.
    6. Ikonen, Pasi, 2017. "Financial depth, debt, and growth," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number e51, July.
    7. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    8. Balcilar, Mehmet & Gupta, Rangan & Lee, Chien-Chiang & Olasehinde-Williams, Godwin, 2018. "The synergistic effect of insurance and banking sector activities on economic growth in Africa," Economic Systems, Elsevier, vol. 42(4), pages 637-648.
    9. Jochen Hartwig, 2009. "A panel Granger-causality test of endogenous vs. exogenous growth," KOF Working papers 09-231, KOF Swiss Economic Institute, ETH Zurich.
    10. Hartwig, Jochen, 2012. "Testing the growth effects of structural change," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 11-24.
    11. Osvaldo Lagares, 2016. "Capital, Economic Growth and Relative Income Differences in Latin America," Discussion Papers 16/03, Department of Economics, University of York.
    12. Alali, Walid Y., 2010. "Impact of Institutions and Policy on Economic Growth: Empirical Evidence," EconStor Preprints 269878, ZBW - Leibniz Information Centre for Economics.
    13. Cristian Incaltarau & Gabriela Carmen Pascariu & Adelaide Duarte & Peter Nijkamp, 2021. "Migration, regional growth and convergence: a spatial econometric study on Romania," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 66(3), pages 497-532, June.
    14. Zaiter Lahimer, Mahjouba, 2011. "L’impact des entrées de capitaux privés sur la croissance économique dans les pays en développement," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/7670 edited by Sterdyniak, Henri.
    15. Jayanti Bhattacharjee & Sushil Kr. Haldar, 2015. "Economic Growth of Selected South Asian Countries: Does Institution Matter?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(2), pages 356-370, February.
    16. Cristian Incaltarau & Ilkhom Sharipov & Gabriela Carmen Pascariu & Teodor Lucian Moga, 2022. "Growth and convergence in Eastern Partnership and Central Asian countries since the dissolution of the USSR—embarking on different development paths?," Development Policy Review, Overseas Development Institute, vol. 40(1), January.
    17. Sultana, Tanzila & Dey, Sima Rani & Tareque, Mohammad, 2022. "Exploring the linkage between human capital and economic growth: A look at 141 developing and developed countries," Economic Systems, Elsevier, vol. 46(3).
    18. Ejike Udeogu & Shampa Roy-Mukherjee & Uzochukwu Amakom, 2021. "Does Increasing Product Complexity and Diversity Cause Economic Growth in the Long-Run? A GMM Panel VAR Evidence," SAGE Open, , vol. 11(3), pages 21582440211, August.
    19. John Ssozi & Simplice A. Asongu, 2016. "The Comparative Economics of Catch-up in Output per Worker, Total Factor Productivity and Technological Gain in Sub-Saharan Africa," African Development Review, African Development Bank, vol. 28(2), pages 215-228, June.
    20. E. Tsanana & X. Chapsa & C. Katrakilidis, 2016. "Is growth corrupted or bureaucratic? Panel evidence from the enlarged EU," Applied Economics, Taylor & Francis Journals, vol. 48(33), pages 3131-3147, July.

    More about this item

    Keywords

    bank profitability; economic growth; Central and Eastern Europe; panel analysis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbp:nbpbik:v:55:y:2024:i:2:p:181-200. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wojciech Burjanek (email available below). General contact details of provider: https://edirc.repec.org/data/nbpgvpl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.