Does Financial Deepening Spur the Economic Growth? Evidence from Bosnia and Herzegovina

Journal of Economic Cooperation and Development, Vol. 37, No. 1, 2016

27 Pages Posted: 10 Jul 2016

See all articles by Mehmed Ganic

Mehmed Ganic

International University of Sarajevo (IUS), Economic Department ; Faculty of Business and Administration

Betul Ismić

Istanbul University, Faculty of Economics, Students

Sahrudin Sarajcic

University of Sarajevo

Date Written: June 7, 2016

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.

Keywords: Financial Deepening, Economic growth, ARDL model, financial sector efficiency

JEL Classification: E44, O11

Suggested Citation

Ganic, Mehmed and Ismić, Betul and Sarajcic, Sahrudin, Does Financial Deepening Spur the Economic Growth? Evidence from Bosnia and Herzegovina (June 7, 2016). Journal of Economic Cooperation and Development, Vol. 37, No. 1, 2016, Available at SSRN: https://ssrn.com/abstract=2805896

Mehmed Ganic (Contact Author)

International University of Sarajevo (IUS), Economic Department ( email )

Sarajevo, 71210
Bosnia and Herzegovina

Faculty of Business and Administration ( email )

Sarajevo
Bosnia and Herzegovina
+38733957414 (Phone)
+38733957102 (Fax)

Betul Ismić

Istanbul University, Faculty of Economics, Students ( email )

Istanbul
Turkey

Sahrudin Sarajcic

University of Sarajevo

Obala Kulina bana 7
71000 Sarajevo
Bosnia and Herzegovina

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