The Relationship Between Banking Sector Development And Economic Growth: Evidence from Myanmar

Abstract

— This thesis investigates the disaggregated effects of three indicators of financial development:
bank credit to the private sector as the ratio of gross domestic product (GDP); bank deposit as the ratio of
GDP; and broad money as the ratio of GDP on real GDP per capita in Myanmar from 1973 to 2017. The
same analysis was also conducted with cross-country data from Cambodia, Laos, Myanmar and Vietnam
(CLMV countries) from 1994 to 2017 for comparison with time-series analysis for Myanmar. A particular
focus in made on banking sector development component impact upon real GDP per capita by using annual
data. Cointegration, the error correction model (ECM), and Granger causality test were used to discern the
direction of causality between banking sector development and real GDP per capita.
Empirical findings provide evidence for positive and statistically significant impact of bank credit as the
ratio of GDP; bank deposit as the ratio of GDP; and broad money as the ratio of GDP as positive and upon
real GDP per capita in the long run. ECM results show that an insignificant relationship exist in the short
run. On the other hand, the Granger causality test reveals a tendency to favor the demand-following
hypothesis in Myanmar, whereas most panel analysis findings support the supply-leading hypothesis.
Therefore, this study concludes that Myanmar should emphasize long-term growth-promoting activities.