The impact of the banking sector on economic structure and growth empirical evidence from southeast asia 2022

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY  LÊ PHƯƠNG THÙY THE IMPACT OF THE BANKING SECTOR ON ECONOMIC STRUCTURE AND GROWTH EMPIRICAL EVIDENCE.

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY - - LÊ PHƯƠNG THÙY THE IMPACT OF THE BANKING SECTOR ON ECONOMIC STRUCTURE AND GROWTH: EMPIRICAL EVIDENCE FROM SOUTHEAST ASIA GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 7340201 HO CHI MINH CITY, 2022 MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY - - LÊ PHƯƠNG THÙY THE IMPACT OF THE BANKING SECTOR ON ECONOMIC STRUCTURE AND GROWTH: EMPIRICAL EVIDENCE FROM SOUTHEAST ASIA GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 7340201 SUPERVISOR NGUYỄN DUY LINH, Ph.D HO CHI MINH CITY, 2022 COMMENT OF THE SUPERVISOR Ho Chi Minh City,…./…./2022 Supervisor NGUYỄN DUY LINH i ABSTRACT The main goal of this research is to investigate how the development of a banking sector (hereinafter "banking sector development") affects the growth, development, and structure of Southeast Asian economies The impact of the banking sector development on the development of the industrial, agricultural, and service sectors At the same time, the study investigates whether economic structure and growth aid in the development of the banking industry The study, which runs from 2008 to 2020, is based on data from Southeast Asian countries The Ordinary Least Squares method and the Dynamic Ordinary Least Squares method were used throughout the study, along with country-fixed effect and year-fixed effect The final results show that the relationship between the development of the banking system and economic development and growth is a two-way relationship in which the impact of agriculture, industry, and service sectors on the banking sector is significant However, in general, Southeast Asian countries should focus their resources on developing the banking sector and the industrial sector Keywords: agricultural sector; banking sector; economic structure; economic growth; industrial sector; service sector; Southeast Asia ii COMMITMENT As the author of this graduate thesis, I hereby declare that: My name is: Lê Phương Thùy Currently a student in class HQ6-GE05, majoring in Finance and Banking, Banking University of Ho Chi Minh City The topic of the internship report is: “The impact of the baning sector on economic structure and growth: empirical evidence from Southeast Asia.” This graduation thesis is done by me, with the help of the instructor, Mr Nguyen Duy Linh The content in this graduation thesis is made based on my research during my study time as well as from summarizing the knowledge I have learned while studying at the school The information, documents and data in this report are completely honest and fully quoted, specific and clear I take full responsibility for this pledge, respectfully! Ho Chi Minh City,…./…./2022 Author Lê Phương Thùy iii ACKNOWLEDGEMENTS First of all, I would like to thank the faculty of Finance, Banking University of Ho Chi Minh City In particular, I would like to thank Mr Nguyen Duy Linh, the lecturer who directly guided me during the internship and report writing process His enthusiastic guidance and practical suggestions helped me to complete this graduation thesis I would also like to express my heartfelt thanks to my father and mother, who have given up their time to care for me and who are usually busy from early morning till late at night, so that I have valuable time to concentrate on my thesis and don't have to worry about anything other than focusing on the thesis The report cannot avoid certain errors due to time constraints, reasoning level, and personal experience I eagerly await teacher feedback to help me enhance my research Finally, I would like to wish the teachers of the Faculty of Finance at the Banking University of Ho Chi Minh City good health and success in their teaching work I wish the leadership, uncles, and brothers and sisters at the Thu Duc branch good health, success in their work, and a dedication to the banking industry Ho Chi Minh City, …./…./2022 Author Lê Phương Thùy iv Table of Contents ABSTRACT i COMMITMENT ii ACKNOWLEDGEMENTS iii LIST OF ABBREVIATIONS viii LIST OF FIGURES .ix LIST OF TABLES x CHAPTER 1: INTRODUCTION 1.1 The importance of research topic 1.2 An overview of the research 1.3 The research's objective 1.3.1 Overall objectives 1.3.2 Specific objectives 1.4 Research questions 1.5 Subject and scope of the study 1.6 Research methods 1.7 Research contribution 1.7.1 Literature gap 1.7.2 New contributions 1.8 Research structure v CONCLUSION CHAPTER CHAPTER 2: THEORETICAL FRAMEWORK AND LITERATURE REVIEW 2.1 Theoretical framework 2.1.1 Banking sector development and economic growth 2.1.2 Banking sector development and economic structure 11 2.2 Literature review 12 2.3 Hypothesis development 16 CONCLUSION CHAPTER 22 CHAPTER 3: RESEARCH METHODS 23 3.1 Research process 23 3.2 Data and sample 24 3.3 Empirical methodology 29 CONCLUSION CHAPTER 32 CHAPTER 4: RESEARCH RESULTS 33 4.1 Descriptive statistics and univariate analysis 33 4.2 Banking sector in Southeast Asia overview 35 4.3 The effects of banking sector development on industrial sector, agricultural sector and service sector development 37 4.3.1 The effects of banking sector development on industrial sector development 37 4.3.2 The effects of banking sector development on agricultural sector development 40 vi 4.3.3 The effects of banking sector development on service sector development 41 4.4 The effects of banking sector development on industrial sector, agricultural sector and service sector growth 43 4.4.1 The effects of banking sector development on industrial sector growth…………………………………………………………………………….44 4.4.2 The effects of banking sector development on agricultural sector growth 45 4.4.3 4.5 The effects of banking sector development on service sector growth 46 The effects of economic structure and growth on banking sector development 47 4.5.1 The effects of economic development on banking sector development…………………………………………………………………… .48 4.5.2 The effects of economic growth on banking sector development 50 CONCLUSION CHAPTER 54 CHAPTER 5: CONCLUSION 55 5.1 Conclusion 55 5.2 Limitation of the thesis and future research direction 58 CONCLUSION CHAPTER 60 REFERENCES 61 APPENDIX 69 vii 57 According to the author, the development of the banking sector has an impact on the development of the economy through three major sectors: agriculture, industry, and service In which the development of the banking sector has a detrimental impact on the agriculture and industrial sectors while having a positive impact on the development of the service sector Furthermore, the author discovers that the development of the banking sector has a negative impact on the growth of the agriculture sector, whereas industry and services are unaffected  The effects of economic development and growth on banking sector development Table 5.2: The effects of economic development and growth on banking sector development Sector Banking Agricultural Industrial Service Development Negative Growth No effect Development Positive Growth Negative Development Positive Growth Negative According to the research results, the development of the agricultural sector has a negative influence on the development of the banking sector, while the development of the industrial and service sectors has a positive effect In addition, the growth of the agricultural sector has no effect on the development of the banking sector, and the growth of the industrial and service sectors has a negative effect 58 In summary, the author finds that the influence of banking sector development and sectoral economic growth is generally two-way Southeast Asian countries should focus their resources on developing the banking, industrial and service sectors In particular, the development of the industrial sector is the most important because industry creates a large amount of material wealth for society Industry is the key to promoting the development of other economic sectors such as trade - services, agriculture, because industry provides most of the means of production, builds material and technical foundations for all economic sectors In addition, the development of the industrial sector also creates favorable conditions for the effective exploitation of natural resources in different territories, creating the possibility of expanding production, labor market, creating many jobs, increase income, strengthen national security 5.2 Limitation of the thesis and future research direction  Limitation of the thesis Besides the obtained results, the research topic still has certain limitations Research time is limited; the thesis only focuses on the years 2008 to 2020, a rather limited period compared to previous studies on the same topic The data has not been updated in recent years (in 2021), making it difficult to follow the reality of the study Because of the serious lack of data for Southeast Asian countries, the author only collects data from six countries that represent the region Therefore, the data does not include all 11 Southeast Asian countries In addition, because the number of research countries (n = 6) is smaller than the number of years of research (t = 13), the author cannot solve the endogenous problem through the GMM method (which requires n >= t) However, this is not a big problem because this is one of the popular research topics in the past decade, and the variables in the model have a solid theoretical and practical basis 59  Future research direction First, by increasing the number of years of observation, extending the sampling interval will improve the accuracy of future study results At the same time, expanding the scope of research from Southeast Asia to Asia, the impact of banking sector development on the economy in underdeveloped, developing, and developed countries may be different This needs to be studied in more depth Second, in addition to the variables BANK1, BANK2 and BANK3, which are two measures for the development of the banking sector, the study may include other variables that can represent the development of the banking sector in a genuine way, more precisely The same is true for the growth and development variables of the agricultural, industrial, and service sectors Finding variables that represent these factors more accurately can create a more comprehensive model 60 CONCLUSION CHAPTER In Chapter 5, the author summarizes the main results of the thesis as well as makes recommendations for Southeast Asian countries to focus more on developing the banking and industrial sectors, followed by the development of the service sector At the same time, the thesis also points out the problems and limitations that still exist in the research process 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Determining the level of impact of the banking sector development on the growth of economic sectors - Determining the level of impact of the growth of industry, agriculture, and service sector on banking. .. Table 5.1: The impact of the development of the banking sector on the development and growth of the economy 56 Table 5.2: The effects of economic development and growth on banking sector