Does Financial Deepening spur the Economic growth? Evidence from Bosnia and Herzegovina

TitleDoes Financial Deepening spur the Economic growth? Evidence from Bosnia and Herzegovina
Publication TypeJournal Article
Year of Publication2016
Date PublishedMarch , 2016
JournalJournal of Economic Cooperation and Development (JECD)
Volume37 , No. 1
Section131
Publication Languageeng
AuthorsGanić, M, Ismic, B, Sarajcic, S
ISSN Number1308-7800
KeywordsARDL model, Economic growth, Financial Deepening, financial sector efficiency.
Abstract

This paper focuses on the exploration of the causal link between the degree of financial deepening and economic growth in Bosnia and Herzegovina (B&H) by employing ARDL cointegration estimation methodology. ARDL model gives an indication of how some specified variables affect each other over the period of 2006:Q1-2014:Q3. Our findings did not confirm the statistically significant and positive influence of financial deepening on B&H economic growth as measured by FD2, FD3 (Financial Development Indicator-2, and Financial Development Indicator-3) or this relationship seems to be unclear. Obviously, except for the FD1 (monetization ratio) variable, which was proven to be statistically significant and positive in terms of economic growth, this relationship was questionable for the other two variables. Furthermore, it is interesting to note that the behavior of economic growth was strongly influenced by the quality of the financial sector environment and aid effectiveness over the sample period.