Banking sector depth & long-term economic growth in the GCC States: relationship nature, sector development status & policy implications

The thesis investigates the nature of the relationship between the banking sector depth and long-term economic growth in the Gulf Cooperation Council (GCC) States, assesses the banking sector development status in each of the States, and underlines the policy implications in the light of the banking-growth nexus and the banking development benchmarking models’ findings for the region by undertaking three projects. The thesis examines the nature of the relationship between banking sector depth and long-term economic growth in the NRBC—as a proxy for the GCC States— vis-à-vis the rest of the world countries. For the empirical investigation, a dynamic panel data approach, i.e. Generalised Method of Moments (GMM), is adopted over the period 1961 to 2013. By utilising mixed effects and System GMM frameworks, the research identifies the countries with the strongest banking-growth relationships and establishes the banking sector development determinants in those countries. Employing a novel benchmarking process, the thesis assesses the status of the banking sector development in each of the GCC member countries and simulates the change in the banking sector depth across the Gulf region over a period of ten years to highlight the potential policy implications for the sector development. The findings of the thesis suggest that the relationship between banking sector depth and long-term economic growth in the NRBC is non-linear, where the relationship between the banking sector depth and economic growth turns from positive to negative beyond certain levels of sector depth. In comparison to other countries, the results indicate that the banking-growth nexus in the NRBC exhibits a smaller total effect magnitude as well as a shorter time between the change in the sector depth and its effect on economic growth. The benchmarking of the banking sectors in the GCC region suggests that in five of the six member countries the banking sectors are underdeveloped. The simulation results predict that the banking sectors will develop further in half of the countries in the region, given their current levels of banking sector development determinants, while two countries require reforms in terms of undertaking regulations and policies to avoid seeing their sector development levels deteriorate. The thesis contributes to theory by confirming findings in the literature and expanding the body of knowledge through novel findings. This research also contributes to policy by demonstrating the significance of the banking sector development for long-term economic growth in the NRBC, providing policymakers in the Gulf States with the status of their banking sectors, and underlining the banking sector depth determinants that ought to be considered when setting regulations and policies that are aimed at developing the banking sector further

Simulating Banking Sector Development in the GCC States

We provide simulation results on the banking sector’s depth levels for the Gulf Cooperation Council (GCC) States. In this context, several relationships between four banking sector depth ratios and the banking sector determinants in the top quartile countries are considered. The emerging evidence suggests that Oman and Saudi Arabia are set to exhibit deepening in their financial sector whilst Bahrain and Kuwait are likely to be the beneficiaries from enhancing banking sector stability, efficiency, and competition, as well as improving their governance, institutional, and legal settings

Simulating Banking Sector Development in the GCC States

We provide simulation results on the banking sector’s depth levels for the Gulf Cooperation Council (GCC) States. In this context, several relationships between four banking sector depth ratios and the banking sector determinants in the top quartile countries are considered. The emerging evidence suggests that Oman and Saudi Arabia are set to exhibit deepening in their financial sector whilst Bahrain and Kuwait are likely to be the beneficiaries from enhancing banking sector stability, efficiency, and competition, as well as improving their governance, institutional, and legal settings

Banking sector depth and economic growth nexus: a comparative study between the natural resource-based and the rest of the world’s economies

This paper investigates the relationship between banking sector depth and long-term economic growth in the natural resource based economies vis-à-vis economies that are not dependent on natural resources. For the empirical investigation, a Generalised Method of Moments (GMM) estimator for dynamic panel-data models is adopted for 194 countries spanning the period 1964 to 2013. By using different measures of banking sector depth and economic growth, the investigation yields three key findings. First, the banking-growth relationship is non-linear and positive within certain levels of banking sector depth in both country groups. Second, the time lag between the change in the level of banking sector depth and the effect on economic growth is shorter in the natural resource-based countries than in the other countries. Finally, the total effect of banking sector deepening on long-term economic growth is weaker in economies with abundant natural resources than in the rest of the world

Benchmarking modelling in the context of banking sector deepening and long-term economic growth

This paper identifies a host of key factors that influence the development of the banking sector as well as enhances our understanding of benchmarking modelling as a means of stimulating economic growth. A novel benchmarking method is utilized that assesses the level of banking sector depth in a country against its counterparts in the top quartile countries using mixed effects and system GMM for dynamic panel data models. The results suggest that the development of the banking sector is contingent upon factors that can be traced within the structure of the sector, the macroeconomic environment as well as the governing, institutional, and legal frameworks. The paper presents four benchmarking models that potentially provide policymakers with tools to benchmark the levels of banking sector development against their peers in countries in which the particular sector contributes significantly to economic growth