DOES BANK PROFITABILITY PROMOTE ECONOMIC GROWTH AND VICE VERSA? PANEL CAUSALITY EVIDENCE FROM THE SELECTED COUNTRIES

Abstract

Banks, which have an important role in the country economies, increase the amount of savings and capital accumulation by bringing together those who supply and demand funds in the economy, and this increase contributes positively to economic growth and employment through the resource transfer function of banks. The ability of banks to function properly depends largely on their profitability levels, and banks with desired profitability levels are expected to have a positive effect on economic growth. Therefore, it is important to conduct more empirical studies in terms of determining the profitability of banks and the relationship between this profitability level and economic growth, which are of vital importance in national economies. At this point, the purpose of this study is to determine the causal relationship between bank profitability and economic growth across eight selected countries, including Argentina, Brazil, Chile, Croatia, India, Poland, Russia, and Turkey. Panel causality test is applied to examine the so-called causality relationship by considering the period of 2009-2018. The empirical findings have shown that bank profitability in the selected developing countries (Chile, Poland, Turkey and Russia) promotes the economic growth. To the best of our knowledge, this study provides an in-depth insight into by considering several countries and using panel causality test to study the relationship between bank profitability and economic growth.

Keywords

• Bank Profitability
• Economic Growth
• Panel Causality

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