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Do Profitable Banks Make a Positive Contribution to the Economy?

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  • Vijay Kumar

    (New Zealand Institute for Business Research, The University of Waikato, Hamilton 3240, New Zealand)

  • Ron Bird

    (School of Accounting, Finance and Economics, The University of Waikato, Hamilton 3240, New Zealand)

Abstract

A number of studies have investigated the relationship between financial sector development and economic growth; however, the impact of bank profitability on economic growth is still unclear. We investigate the link between bank profitability and economic growth in the Asia-Pacific region over the period 2004–2014. Using the system GMM estimator, our findings suggest that a profitable banking sector is a prerequisite for economic growth in the Asia-Pacific region and that the impact of bank profitability on economic growth is more prominent in small banking sectors. Perhaps surprisingly, we found that the bank size has a negative impact on GDP growth, with the influence of bank profitability on economic growth reducing as the size of the banking sector increases. Our results also show that the impact of profitability on economic growth is much larger in developed economies compared to small emerging and large emerging economies.

Suggested Citation

  • Vijay Kumar & Ron Bird, 2020. "Do Profitable Banks Make a Positive Contribution to the Economy?," JRFM, MDPI, vol. 13(8), pages 1-18, July.
    • Handle: RePEc:gam:jjrfmx:v:13:y:2020:i:8:p:159-:d:389084
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    References listed on IDEAS

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