The Impacts of Banking System Stability on Sustainable Development: Conditional Mean-Based and Parameter Heterogeneity Approaches

Document Type: Original Research

Authors

School of Finance and Economics, Jiangsu University, Zhenjiang, China

Abstract

We explored the impacts of banking system stability on sustainable development for the period 2000-2016 as well pre and post-global financial crisis periods. We employed econometric frameworks of dynamic fixed effects, system GMM and most recent estimator - panel quantile regression with fixed effects to provide robust results from the conditional mean-based and parameter heterogeneity approaches. Our results revealed that, conditioning on other sustainable development determinants, banking system stability have significant impacts on sustainable development as well as empirical evidence of parameter heterogeneity response of sustainable development for countries conditionally distributed on low and high sustainable development path for both short-run and long-run. In addition, we established that, countries distributed on low sustainable development paths gain more from bank stabilization policies compared to countries on middle and higher sustainable development paths. Finally, we established vanishing adverse effects of banking system stability on sustainable development in the post-global financial crisis period.

Keywords


Alexander, K. (2014). Stability and sustainability in banking reform: are environmental risks missing in Basel III. CISL & UNEPFI: Cambridge and Geneva.
Al-Moulani, A. and Constantinos. A., 2017. Banking sector depth and economic growth nexus: a comparative study between the natural resource-based and the rest of the world’s economies, International. Review of Applied Economics, 31(5), 625-650. 
Aluko, O. A. and Ajayi, M. A. (2018). Determinants of banking sector development: Evidence from Sub-Saharan African countries. Borsa Istanbul Review, 18(2), 122-139.
Arcand, J.-L. Berkes, E. and Panizza, U. (2012). Too much finance? IMF Working Paper, No. 12/161, Washington DC: IMF.
Azeez, B.A. and Oke, M.O. (2012). A time series analysis on the effect of banking reforms on Nigeria’s economic growth. International Journ. Econ. Res, 3(4), 26-37.
Barajas, A. Chami, R. and Yousefi, R. (2013b). IMF Working Papers. The Finance and Growth Nexus Re-Examined: Do All Countries Benefit Equally? IMF Working Paper,No. 13/130, IMF, Washington DC.
Barro, R. and Lee, J.W. (2010). A New Data Set of Educational Attainment in the World, 1950-2010.  NBER Working Paper No. 15902.
Blavarg, M. and Nimander, P. (2002, October). Interbank exposures and systemic risk. In Risk Measurement and Systemic Risk-Proceedings of the Third Joint Central Bank Research Conference (Basel, Bank for International Settlements) (pp. 287-305).
Bremus, F. M. and Lambert, C. (2014). Banking union and bank regulation: Banking sector stability in Europe. DIW Economic Bulletin, ISSN 2192-7219.
Brock, W. and Durlauf, S. (2001). Growth empirics and reality,” World Bank Economic Review, Vol. 15 (no. 2), pp. 229-72.
Burbidge, J. B. Magee, L. and Robb, A.L. (1988). Alternative transformations to handle extreme values of the dependent variable. Journal of the American Statistical Association, 83(401), 123-127.
Canay, I.A. (2011). A simple approach to quantile regression for panel data. The Econometrics Journal, 14(3), 368-386.
Chernozhukov, V. Fernandez-Val, I. and Galichon, A. (2010). Quantile and probability curves without crossing. Econometrica, 78(3), 1093-1125
Demetriades, P.O. and Rousseau, P.L. (2016). The changing face of financial development. Economics Letters141, 87-90.
Dufrenot, G. Mignon, V. and Tsangarides, C. (2009). The trade-growth nexus in the developing countries: A quantile regression approach. CEPII, WP No 2009-04
Durlauf, S. and Quah, D. (1999). The new empirics of economic growth. In J. B. Taylor and M. Woodford (eds), Handbook of Macroeconomics Vol. IA (North Holland).
Fernàndez C. Ley, E. and Steel, M. (2001a). Model uncertainty in cross-country growth regressions. Journal of Applied Econometrics, 16, 563-76.
Ferreira, S. Hamilton, K. and Vincent, J.R. (2008). Comprehensive wealth and future consumption: accounting for population growth. The World Bank Economic Review, 22(2), 233-248.
Global Footprint Network (2019). Data and Methodology. Retrieved on May 13, 2019 from www.data.footprintnetwork.org  [Dataset]
Gnegne, Y. (2009). Adjusted net saving and welfare change. Ecological Economics, 68; 1127 – 1139. 
Hamilton, K. (2005). Testing genuine saving. World Bank Policy Research Working Paper, vol. 3577.
Hartmann, P. Straetmans, S. and De Vries, C.G. (2005). Banking system stability: A cross-Atlantic perspective (No. w11698). National Bureau of Economic Research.
Jayakumar, M. Pradhan, R.P. Dash, S. Maradana, R.P. and Gaurav, K. (2018). Banking competition, banking stability, and economic growth: Are feedback effects at work?. Journal of Economics and Business, 96, 15-41.
Jiang, B. (2014). Financial stability of banking system in China (Doctoral dissertation, Nottingham Trent University). Retrieved on 23th January 2019 from http://irep.ntu.ac.uk/27925/
Koenker, R. (2004). Quantile Regression for longitudinal data. Journal of Multivariate Analysis, 91(1), 78-84.
Koenker, R. and Bassett, G. (1978). Regression Quantiles. Econometrica, Vol. 46, pp. 33-50.
Machado, J. A. F. and Santos Silva, J. M. C. (2019). Quantiles via moments. Journal of Econometrics, 213(1), 145-173.
Manier, V. (2018). Bank of America is leading on its commitment to sustainable businesses. ENGIE Insight. Retrieved on 14th September, 2019 from  https://www.engieinsight.com/blog/2018/09/bank-america-sustainable-businesses/
Murphy, P. Waygood, S. and Wilson, G. (2017). Ideas for Action for a Long-Term and Sustainable Financial System. Business and Sustainable Development Commission, (January).
Ntarmah, A. H. Kong, Y. and Gyan, M. K. (2019). Banking system stability and economic sustainability: A panel data analysis of the effect of banking system stability on sustainability of some selected developing countries. Quantitative Finance and Economics, 3(4), 709-738
Pardi, F. Salleh, A.M. and Nawi, A.S. (2015). Determinants of sustainable development in Malaysia: A VECM approach of short-run and long-run relationships. American Journal of Economics, 5(2), 269-277.
Romero, J. C. and Linares, P. (2013). Strong versus weak sustainability indexes in a conurbation context. A case example in Spain. Working Paper
Roodman, D. (2009a). How to Do xtabond2: An introduction to difference and system GMM in Stata. The Stata Journal, 1(9), 86–136.
Rousseau, P.L. and Wachtel, P. (2011). What is happening to the impact of financial deepening on economic growth?. Economic inquiry49(1), 276-288.
Samargandi, N. Fidrmuc, J. and Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? evidence from a sample of Middle-Income Countries. World Development, 68(1), 66–81.
Schmidt-Traub, G. and Shah, A. (2015). Investment needs to achieve the Sustainable Development Goals. Paris and New York: Sustainable Development Solutions Network.
Sherwood, B. and Wang, L. (2016). Partially linear additive quantile regression in ultra-high dimension. Ann. Stat. 44 (1), 288–317.
Tongurai, J. and Vithessonthi, C. (2018). The impact of the banking sector on economic structure and growth. International Review of Financial Analysis, 56, 193-207.
Vander Stichele, M. (2015). How financialization influences the dynamics of the food supply chain. Canadian Food Studies/La Revue canadienne des études sur l'alimentation2(2), 258-266.
Wasiu, O. I. and Temitope, M.W. (2015). Financial Market Integration and Economic Growth: An Experience from Nigeria. International Journal of Management, Accounting and Economics, 2(7), 656-668.
World Bank Group (2019). Financial stability. Washington DC:World Bank.
World Bank Group (2019). World Development Indicators 2019. Washington DC:World Bank. [Dataset]
Wyman, O. (2015). Post-crisis changes in the stability of the US banking system evidence from US bank holding companies from 2004 to 2014. NY 10036: New York.
Zadek, S. and Kharas, H. (2018). 2030 Agenda for Sustainable Development: Aligning financial system architecture and innovation with sustainable development. United Nations Environment Programme.
Zhu, H. Duan, L. Guo, Y. and Yu, K. (2016a). The effects of FDI, economic growth and energy consumption on carbon emissions in ASEAN-5: evidence from panel quantile regression. Econ. Model. 58, 237–248.
Zuev V., Ostrovskaya E. and Frolova E. (2017). Sustainable economy: Do not use the debt widely. International Organisations Research Journal, 12(4), 68–90 (in Russian and English).