MINISTRYOFEDUCATIONANDTRAINING STATEBANKOFVIETNAM BANKINGUNIVERSITYOFHOCHIMINHCITY LÊPHƯƠNGTHÙY THEIMPACTOFTHEBANKINGSECTOR ONECONOMICSTRUCTUREANDGROWTH EMPIRICA LEVIDENCEFROM SOUTHEASTASIA GRADUA[.]
Theimportanceofresearchtopic
Acommercialbankisamoney- managementinstitutionwhoseprimaryandconsistentfunctionistomobilizedepositsforrepa ymentandtomakeloansfordiscountinga s a f o r m o f p a y m e n t T h e c r e a t i o n o f a b a n k i s r e g a r d e d a s o n e o f t h e most remarkable inventions in world history,and it is continually developing andperfected to meet the socio-economic needs of each age The bank is an integral part ofthe economy, especially in the current one, and it has always held a prominent role inthe national economy with key activities in money, credit, andpayment inwhichpaymentismade.
Banking is regarded as the essential component of the economy; its operations spanall social economic activities; it is a type of intermediary activity involved with themovement of the entire economy Banking is a unique type of business that deals withmoney Because banks serve as financial mediators between depositors and borrowers,the Bank will be a powerful regulatory tool in the economy as well as in some non-economicdomains.
Despite the fact that it does not directly generate actual wealth for the economy,thebanking industry plays a significant role in fostering economic development through itsownoperationalfeatures.Thefollowingrolesaredescribedindetail:
First,forindividuals,organizations,andeconomicentitiestoconsider:Banksreceivemon ey fromnon-cashpaymentsmadeatthebank,orthereceivingbankpreserves precious assets, valuable paperwork,… lowering storage and preservationcosts Furthermore, on the basis of clients' deposits, the Bank provides many utilitieslike payment, money transfer, and other services, lowering money circulation costswhile assuring the security, advantage, and benefits for owners Can be mentionedpreviously.
Second,intermsofsocialreproduction:TheBankusuallyconcentratesontemporarilyidl ecapitalmobilizationfromallbusinessesandindividualsintheeconomy After that the Bank would use the mobilized capital to invest (securities,research,…) and lend to meet the needs of customers through credit operations Allcapital- shortageneedsofalleconomicsectorsinsocietyaremetassoonaspossible.Asac onsequence,businesses,economicorganizations,andindividualshavetheopportunitytoex pandproduction,upgrademachineryandequipment,increaseeconomicefficiency, andenhancethereproductionanddevelopment processes.
Third, in the realm of currency circulation: Banks act as an organizational agency toregulatethecirculationofmoney(limitingtheamountofmoneyrequiredincirculation); thisroleisconveyedthroughdepositandlendinginterestrates.
Fourth, for the Government: Banks are direct tools of the government for enforcingmonetary,credit,andpaymentrules.ThroughtheBank,theStatemanagesthemacr oeconomy.Simultaneously,theBankmaintainsacreditrelationshipwitht h e Bank by lending to the State Budget in emergency situations or retaining reserves fortheStateinsomegoldandforeigncurrencies.
As the economy in general and the banking sector in particular have developed, theBankh a s c o n f i r m e d t h e f o r e g o i n g d u t i e s t h r o u g h i t s b a s i c f u n c t i o n a l a r e a s , n a m e l y currency, credit, and payment Banks, it may be claimed, play a key role in repellingandcontaininginflation,graduallymaintainingcurrencyvalueandexchangeratest ability,andcontributingtothebettermentofthemacroeconomy,investmentenvironment,an dmanufacturingbusiness.
Obviously,thebankingindustryplaysanimportantroleintheeconomy.However,a number of general studies on the impact of banking activities on the structure anddevelopment of the economy have become outdated or still have many shortcomings,not keeping up with reality That is why I chose to research: “Impacts of the bankingsectoroneconomicstructureandgrowth:EmpiricalevidencefromSoutheastAsia”.
Anoverviewoftheresearch
Southeast Asia has been one of the world's fastest developing regions, with GDPgrowth per capita exceeding the global average for many years (according to the WorldBank) Bank penetration data, on the other hand, reflect something more remarkable:according to a 2011 World Bank report, approximately 41.14 percent of SoutheastAsians have a bank account By
2017, this figure had risen to 52.64 percent Singaporehas the highest value at 97.81 percent, while Cambodia has the lowest value at 17.8percent From there, it is clear that the banking industry in Southeast Asia is rapidlyexpanding.
Sincethe18thcentury,theimportanceofbanksintheeconomyhasbeenrecognized;ma nystudypapersontheroleofbanksintheeconomyhavebeenpublished.
(J.Schumpeter&Backhaus,1911,1934)researchontherelationshipbetween financial development and economic expansion has received a lot of attentionfrom other economic researchers, in which, the development of the banking sector canbe described by the ability of the banking sector to providing broad financial servicesandproducts thatsatisfytherabidexpansionsofeconomicactivities.
Manyotherstudies(King&Levine(1993b,1993a);Thornton(1996);DeGregorio & Guidotti (1995); Berthelemy & Varoudakis (1996)) have documented thepositiveeffectoffinancialdevelopmentoneconomicgrowthusingavarietyofeconometri c techniques, such as cross-sectional, time series, panel data, firm level,industrylevel.Fromthiswecanseethatthisisanissueworthyofattention.
Theresearch'sobjective
Overallobjectives
Studying the relationship between banking sector development and the structureanddevelopmentoftheeconomyacrossthreesectors:agriculture,industry,a n d se rvice.
Specificobjectives
Research questions
- Question 1: Does the development of the banking sector have a positive ornegative effect on the development of the agricultural, industrial and servicesectors?
- Question 2: Does the development of the banking sector have a positive ornegativeeffectonthegrowthoftheagricultural,industrialandservicesectors?
- Question 3: Does the development of agriculture, industry and service sectorshaveapositiveornegativeinfluenceonthedevelopmentofthebankingsector?
Subjectandscopeofthestudy
This thesis subject is the influence of the banking sector on the development andstructureoftheeconomy(agriculturesector,industrysector,servicesector)inSoutheast Asiafrom2008-2020.
- Scope of content: This thesismainly focuses on studying the impact of thebankingsectoroneconomicstructureandgrowth.
- Spatial range: in Southeast Asia (Consists of six countries: Brunei,Indonesia,Malaysia, Singapore,ThailandandVietnam).
Research methods
Tocompletethisthesis,theauthorusesbothqualitative,quantitativemethodologies,na mely:
- Methods of collecting and synthesizing information: The method of collectinginformationisdonebysynthesizingdocuments,policies,journals,doctoral theses related to the topic both inside and outside the country Data sources arefrom reputable and reliable sources such as World Bank, International MonetaryFund,DataStream andtheirrelatedreports.
- Methods of analysis and evaluation: Analyze problems related to details goals tofind out the factors affecting the development of the banking sector based on theindustrial, agricultural and service sectors in six SEA countries from 2008 to2020 The data of the thesis is panel data, author predominantly uses ordinaryleastsquares.Becausethesesectordevelopmentmaybepersistent,au thor constructsasetofbaselinepaneldynamic OLSregressions.
- In-depth research methods: The author compares the research results with realityand makes an assessment Based on the previous dissertations and the actualsituationtodrawexperienceasapremiseforfuturestudies.
Researchcontribution
Literaturegap
Understanding the influence of the banking sector on economic sector structure andgrowth is important for countries However, previous studies on this relationship areoutdatedbecausetheinfluence ofthe banking sectoronthee c o n o m y c h a n g e s f r o m time to time and from region to region, the most recent study on this topic that theauthor found is a study of Tongurai and Vithessonthi (2018), they used data from1960– 2016,inwhichtheearliestdataupdatedfrom SoutheastAsiawasin1975,according to The World Bank.
In this research paper, the author has updated the latestdata for the study as well as focused on the Southeast Asia region, a region that hasnever been noticed before The author believes that the geographical location, history,and economy of Southeast Asian countries have created a distinctive feature for thisregion.
Newcontributions
– Scientific significance:The thesis affirms the link between the development ofthe banking sector with the development of the economy and its structure in theeconomies ofSoutheastAsiancountriesfrom2008to2020.
– Practical significance: The relevance of the formal banking sector, as well asthe development of financial intermediaries, for the expansion of the financialsector and the economy is emphasized in the thesis The study emphasizes theimportance of regulators and monetary policymakers recognizing how sensitivethebankingsystemistoeconomicdevelopmentandstructure.Fromthe re,both the author and the administration will have a stronger foundation to offer adviceand pursue economic reform proposals Managers can also design solutions tomaketheirlong-termstrategymorecompetitiveandproductive.
Researchstructure
This chapter went over the basic information, why the author chose this issue forresearch, the goal of the thesis, the questions to be answered, the scope, the object, andthe methodologyemployedfortheresearch.
The introduction of the dataset and the models used to explore the impact of thebanking sector on economic structure and growth in Southeast Asia is the focus of thischapter.
The model analysis is based on data collected from six Southeast Asian countriesfrom 2008 to 2020, and the thesis uses the statistical software Stata to test and estimatethe regression coefficients of country variables in the model The author next comparesthe collected data to past studies in order to interpret the results logically This outcomegivesevidencetohelpanswerthethesis'sresearchquestions.
This chapter details the key experimental outcomes related to the thesis's studyaims At the same time, this chapter acknowledges significant limits in the thesis thathaveyettobeovercome.Thisisalsothethesis'sfinalchapter.
In chapter 1, the author briefly introduced the study "Impacts of the bankingsector on economic structure and growth: Empirical evidence from SoutheastAsia",including the reasons for choosing the research, previous studies on the same topic,methods, and scope of research The author also presented the process of carrying outhis research and briefly outlined the research content of the following chapters for thereaderto easilyunderstand.
In this chapter, the author presents the basic theories and definitions of bankingsector development and economic growth (through the agricultural, industrial, andservice sectors) in the Southeast Asian countries At the same time, the author alsoprovides the theoretical framework, theoretical basis, and empirical evidence frompreviousstudiesonthisissueinordertoemphasizetheurgency ofthetopicandcreatea foundation for the development of a research model and evaluation of research resultsinthefollowingchapters.Finally,theauthorbuildstheresearchhypothesisandcompletes the researchmodel.
Theoretical framework
Bankingsectordevelopmentandeconomic growth
Thebankingindustrycontributessignificantlytotheoveralleconomicdevelopment of all countries around the world Due to the inadequacy and restrictionsof capital markets, as well as the inability to offer appropriate funding to investors,banksa r e t h e p r i m a r y s o u r c e o f c r e d i t i n d e v e l o p i n g c o u n t r i e s ( S a c i e t a l , 2 0 0 9 ) Banks are very important institutions that serve as the financial sector's backbone,playing a major role in the development of various economic sectors by managing andcontrolling cash flows, utilizing opportunities for investment, and ensuring that moneytransfer channels to projects are efficient and profitable The relationship between thebanking sector and economic growth is a contentious issue According to Revell &Goldsmith (1970), the size of the banking sector is linked to the supply and quality offinancial intermediation, and his study had revealed a positive correlation between thebankingsectorandeconomicgrowth.
Financial sector Exert corporate control
Economic Growth Technological innovation between the financial sector and the real sector until the early twentieth century, whenthe famous German economist (J A Schumpeter, 1997; J Schumpeter & Backhaus,1911)d i s c o v e r e d t h a t f i n a n c i a l s e c t o r s , p a r t i c u l a r l y b a n k s, i s e x t r e m e l y i m p o r t a n t i n the growth of the real economy (Modern growth theory) He contended that banksefficiently mobilize and allocate capital, provide necessary credit to entrepreneurs tofinance physical capital investments, and adopt new production techniques, by thatfostering technological innovation and setting the stage for creative destruction, all ofwhich contribute to economic growth (D Allen (2000); King &
Thisviewpointsuggeststhatfinancialdevelopmentleadstoeconomicprogress;hence,Schump etercanbeconsideredapioneerindevelopingtheconceptregardingtherelationship between finance and growth Demetriades & Hussein (1996) found that theconnection between financial development and growth differs between nations in theirstudy They also founda feedback link in almost halfoft h e n a t i o n s s t u d i e d , b u t i n other countries, the relationship flows from growth to finance, implying that it is farfromuniversalthatfinancialdevelopmentcan contributetoeconomicprogress.
Figure2.1:The channelsof financialdevelopment influencingeconomic
Shaw( 1 9 7 3 ) a r g u e d p e r s u a s i v e l y f o r t h es u p p l y - l e d h y p o t h e s i s ( 1 9 7 3 ) T h e y contend that if a banking system is restrained, notably by cap rates, lending policies,and excessive reserve requirements, economic growth will suffer This phenomenon,according to the duo, leads to low levels of savings, credit allocation, and investment.As a result, they advocate financial liberalization, which would allow real interest ratesto rise, increasing financial savings The essence of the issue is that an increase insaving compared to real economic activity increases financial intermediation, whichincreaseseffective investmentandeconomicgrowth(Ayadietal.,2008).
Bankingsector developmentandeconomicstructure
The banking sector plays a major part in the economic development of anycountry Due to capital market weakness and limitations, as well as the inability toprovide enough sources of funding to investors, banks are the primary source of creditin developing countries (Saci et al., 2009) The development of the banking sector andeconomic progress in Southeast Asian countries is accompanied by a change in theeconomic structure of these countries Agriculture's percentage of GDP in these nationshas been declining over the last 10 years (most notably in Indonesia, Malaysia, andThailand),despiterisingagriculturaloutput.Withincreasingeconomies,thesecountries'e conomieshavebeenorientedtowardindustrialandserviceexpansion,resultinginafall in agriculture'sshareofgrossdomesticproduct.
According to Robinson (1979), financial intermediaries and markets appear atther e q u e s t o f i n d u s t r y A s a r e s u l t o f t h e e c o n o m i c s t r u c t u r e , i n t e r m e d i a r i e s a n d marketplacesarise.Thearg umentthatthetypesofactivitiesinwhichenterprisesengage affect the manner of funding and thus the financial structure of the country hasyettobeaddresseddirectly intheliterature.Togiveprooftotheclaim thatt h e structure and changes in the current economy dictate the direction in which a country'sfinancial system develops, they first differentiate between different financial systems.However,despitetherecentfocusonamoresystematicclassificationofth efinancial system, the literature only provides fairly broad definitions and classification metrics(Moderngrowththeory).
According toBanking vs Market-Based Theory,financial intermediaries play acrucial role in a bank-based financial system by mobilizing funds, providing credit, andfacilitating hedging, aggregation, and risk valuation Capital markets are the primaryfinancialconduit in amarket- basedfinancialsystem(F.Allen &Gale,2000).
In contrast, in 2020, Allen discovered that the structure of the current economycaninfluencethestructureofthefinancialsystem.Thebondbetweenthemismaintai ned even during systemic crises Changes in the economic structure result inchanges in the financial system's structure,with the stockmarket becomingmoresignificant than the banking sector As a result, the findings of event studies indicate acausalrelationshipbetween economicandfinancial structure.
Literaturereview
Asignificantlyofstudysuggeststhatbankingsectordevelopmentplaysasignificant role in economic development, according to the (The World Bank, 2020). Itfosterseconomicgrowththroughcapitalaccumulationandtechnicalprogressbyincreasing thesavingsrate,mobilizingandpoolingfunds,producinginvestmentinformation,facilitatin gandencouragingforeigncapitalinflows,ando p t i m i z i n g capitalallocation.Overexte ndedperiodsoftime,countrieswithmoredevelopedfinancial systems tend to grow quicker, and a vast body of data suggests that this effectis causal: Financial development is not merely a byproduct of economic expansion; italsocontributes toit.
Formanydecades,scientistsandpolicymakershavebeeninterestedintherelationship between financial development and economic growth, this relationship hasbeene x t e n s i v e l y r e s e a r c h e d i n l i t e r a t u r e E a r l i e r r e s e a r c h ( K i n g
Rajan & Zingales (1996)) has shown that financial development has a favorable effecton economic growth They indicate that the preset component of financial developmentaccurately predicts growth over the next 10 to 30 years While their work suggests thattheobservedassociationis notspurious,itdoesnotputany suspicionsregardingcausalitytorest.Theskepticcouldstillmakeseveralarguments.Accordi ngtoManganelli & Popov (2015), the effect of finance on production variability relies onwhether monetary or real shocks are present, and whether the real shocks are caused bychanges in credit demand or credit supply They discover that sophisticated financialmarkets minimize long-term volatility in 28 (Organization for Economic
CooperationandDevelopment)OECDnationsfrom1970to2007.Inaddition,duetodatacons traints,theirsampleislimitedtoindustrializedcountries.Larrain( 2 0 0 6 ) discovered empirical evidence that financial development reduces production volatilityin industrial businesses with strong external dependency and liquidity requirements.Beck et al (2000), on the other hand, find no link between financial development andlong- termvolatility.
In their study of 101 industrialized and developing nations from 1970 to 2010,Ductor & Grechyna (2015) found that financial and real sectors grew at different ratesfrom 1970 to 2010 The relationship between financial development and economicgrowth is influenced by the growth of the economy's real sector Their findings implythat the positive influence of finance on growth is greatest when the financial and realsectors increase in tandem When credit expansion is not supported by an increase inthe money demand of the economy's productive sectors, the likelihood of capital beingallocated to malevolent investments increases, potentially leading to a major economicslowdown or possibly a financial crisis These findings could be used to supplementmacroprudentialpolicyrules.
Theb a n k i n g s y s t e m i s a c r i t i c a l a v e n u e v i a w h i c h f i n a n c i a l d e v e l o p m e n t influencesgrowth.Thefunctionofthebankingindustryisespeciallycrucialforemerging markets and small economies with underdeveloped bond and equity markets.Many firms rely heavily on bank loans astheirmajor (or sole)source ofe x t e r n a l capital(Chinn&Ito(2005);Frederickson&Cline(2010)).Bankingsectordev elopment is critical for economic growth because of the vital function of banks inmobilizingmoneytoprofitableinvestmentopportunitiesandexercisingeffectivecorporat e governance According to Liu et al (2014), industrial sectors that rely onexternal capital grow quicker in nations with higher levels of financial development.Using data from 48 economies, an empirical study has revealed that increased levels ofbanking competition and stability contribute to increased industrial growth Accordingto their study, adding one percentage point to financial depth by way of GDP increasesthe actual value added in a given industry by between 0.045 percent and 0.059 percentforagiven levelofexternal dependency.
The development of a banking sector will benefit economic growth if it reducesbusinessfinancialrestrictionsandbooststheefficiencyofmoneyallocationtoorgani zations with valuable investment opportunities Empirical research suggests thatincreasing levels of financial development alleviate enterprises' financial limitations(Islam & Mozumdar (2007); Love (2003)) Companies must be able to fund theirinvestments at an adequate cost of capital when there is a high level of financialdevelopment Banking sector development is supposed to increase economic activityand growth by improving access to financing and allocating funds more efficiently tohigherproductiveuses.Hassanetal(2011)studiedthelinkbetweenfinancialdevelopment and economic growth from 1980 to 2007 They discovered a link betweenfinance development and economic progress in developing countries Furthermore, ashort-term multivariate analysis yielded conflicting results: most locations had a two- waycausationre lat io ns hi p betweenfinance a n d growth, w hi le the tw o worst r egions had a one-way causality relationship from growth to finance Furthermore, real- worldvariablesliketradeandgovernmentspendingplay anessentialpartinexplainingeconomic growth For developing countries to achieve consistent economic growth, awell- functioningfinancialsystemappearedtobeanecessarybutnotsufficientcondition.
Previous research has demonstrated that the development of the banking sectorhas a favorable influence on output growth Beck et al (2000), for example, show thatprivatecredits(i.e.,creditextendedtotheprivatesectorthroughfinancialintermediaries) arestrictlyrelatedtoeconomicdevelopment,owingtotheconsequences of bank performance of bank performance to non-financial firms Gimet& Lagoarde-Segot
(2012) discover, using panel data from 138 countries from 2002 to2009,thatinter- bankcompetition,adequatemacroprudential safety,thegrowthofcapitalmarkets, adequate civil rights, and entrepreneurship support can fortify theconnections between banks and economic progress, and are crucial characteristics forenhancing banks' ability to deliver larger loan flows to the private sector and improvefinancialinclusionfortheneedy.
Tongurai and Vithessonthipresented a study paper on the influence of bankingsector development on the economy in early 2018, focusing onthe industrial andagriculture sectors They believe that the development of the banking sector has variedeffectsonthedevelopmentoftheindustrialandagriculturalsectors.Ifam o r e advanc edbankingsystemisrequiredforindustrialsectordevelopment,emergingcountries ought to prioritize modernization of their banking systems If, on the otherhand, the development of the banking sector follows the development of the industrialsector, then a country must first assist in the development oft h e i n d u s t r i a l s e c t o r Using data from all across the world, their findings suggest that the development of thebankings e c t o r h a s a n e g a t i v e i m p a c t o n t h e d e v e l o p m e n t o f t h e a g r i c u l t u r a l s e c t o r
However, this detrimental effect is only evident in nations with advanced bankingsectors They discover that the development of the banking sector has no effect on theincrease of the industrial sector Furthermore, the development of the banking sectorhas a negative impact on industrial sector growth but has no impact on agriculturalsectorgrowth.
Amongthelargenumberofstudies,earlierdisaggregatestudiesonthelinkbetween financial development and economic growth are uncommon in the field offinancial development As a result, the author anticipates that the development of thebanking sector will have varied effects on economic structure and sectoral growth Theauthor chose the industry, agriculture, and service sectors to represent the developmentand growth of the economy because these are the three main sectors of the economy inany country Changes in these regions not only reflect changes in the banking systembut also changes in national policy In addition, there have been many empirical studieson the relationship between these regions and the development of the banking sector,which forms a solid foundation for the study More particular, author anticipate that thedevelopment of the banking sector will promote the development of the industrialsector,theagriculturalsector,andtheservicesectorindifferentways.Ifthedevelopmen t ofthebanking sector has variouse f f e c t s o n t h e i n d u s t r i a l , a g r i c u l t u r a l , and service sectors, we will see changes in the relative importance of the above sectorsintheeconomyasthebankingsectorgrows.
Hypothesisdevelopment
Our findings are an extension of the preceding discussion and the findings ofprevious studies (Beck et al (2000); Ductor & Grechyna (2015); Kim et al. (2016);Mirzaei & Moore (2016); Pang & Wu (2009)), which argue that financial resources areone factor contributing to economic growth at the industry level The allocation ofcapitalt o i n v e s t m e n t a c t i v i t i e s w i t h t h e h i g h e s t r e t u r n s i s a n i m p o r t a n t r o l e o f t h e financialsectorineconomicdevelopment(Greenwood&Smith(1997);King& Levine (1993a)) Because a more modern financial system has a higher degree offinancial allocation efficiency (Greenwood et al., 2010), funds will be allocated tocompanies with higher growth potential and less to industries with lower developmentprospects. That is, an industry with more investment prospects is more likely to growfaster and hence gain more from financial development When financial developmentadvances further, an industry with fewer investment options is more likely to haveproblemscollectingextrafundsforinvestment.
Previously, the significance of the banking sector in encouraging industrializationand economic development was investigated (Da Rin & Hellmann (2002); King &Levine (1993a); Ross Levine (1997); Rajan & Zingales (1996); Rioja & Valev (2003)).Becauseeconomicstructurestendtobecomemoreindustrializedaseconomiesprogres s, the endowment of banking development to industrial sector development andgrowth is predicted to differ at different stages of economic evolution As a result,author anticipated that the development of the banking sector will have diverse effectson economic structure (e.g., the relative significance of the industrial, agricultural, andservicesectors)andsectoralgrowth.Moreprecisely,authoranticipatedthatthedevelopm entofthebankingsectorwillboostthedevelopmentoftheindustrial,agricultural, and service sectors in varied ways If the development of the bankingsector has various effects on the industrial, agricultural, and service sectors, we will seechanges in the relative significance of these sectors in the economy as the bankingsectorgrows.
A country with a higher labor and/or natural resource abundance is more likely tobuild an agricultural industry first It will then develop industries and services If acountrytakestheseeasymeasuresintherightorderofdevelopment,itwillseeashift in the distribution of financial resources between the three sectors as the banking sectordevelopsfurther.
Consideracountrythatisstillinitsearly stagesofeconomic development a ndhas a limited bankings e c t o r a n d s u b p a r c a p i t a l m a r k e t s T h e a g r i c u l t u r a l , i n d u s t r i a l , and service sectors are likely to profit from the expansion of the banking industry in theearly phases of economic development, when almost all sectors are underdeveloped.There are two possible outcomes from this: The rise of the banking sector may have adetrimental impact on the service sector in the early stages of economic developmentbecause most countries tend to focus on economic development, develop the industrialsector,andthusaremorelikelytoallocatelargeamountsofresourcesdisproportion ately; or, for some countries, the development of the banking sector willmaking the service sector develop beyond the industrial sector due to the lack oftechnology, low technical level, not being able to compete with developed countries,etc., causing the economic structure to lean towards service development to gain moreprofit To finance and support new economic investments, the banking sector mustinevitablyexpand.Theindustrialandservicesectorsaredevelopingandmoder nizingat the same time that the banking system is becoming more developed The bankingsectorisdevelopingatamoderatepace.Dependingoneachcountry'sc u r r e n t con dition, economic development during this period is likely to center on industry orservices Based on the research by Park and Shin (2013), the industrial sector is not themain sector of GDP in SEA countries, as well as SEA is a later developed regions laterthanot he rr eg io nsi nt he w o r l d ( base do nh is to ri cal pr og re ss) , s o th eau th or be li eves that the second scenario will happen As a result, the author offers the hypothesis listedbelow.
Hypothesis 1: The impact of banking sector development on industrial sectordevelopmentshouldbenegativeforSEAcountries.
It is considered that after a certain level is reached, the agricultural industry is lesslikely to develop further, and the manufacturing sector has better investment potentialthan the agricultural sector. According to Tongurai & Vithessonthi (2018), bankingsector development has a negative effect on agricultural sector development Based onthe above research results, the author hypothesized that the development of the bankingsectoristhenexpectedtohaveadetrimentalimpactonthedevelopmentoftheagricultur al sector in Southeast Asian countries from 2008 to recent years in general, asthisiswheretheagriculturalsectorislocated.
Hypothesis 2: The impact of banking sector development on agricultural sectordevelopmentshouldbenegativeforSEAcountries.
Becausethesecondscenarioisplausible,theauthoralsothinksthatthedevelopment of the banking sector has a favorable impact on the development of theservice sector. This is perfectly compatible with the findings of Park and Shin (2013),who calculated the contributions of agriculture, industry, and services to GDP growthand discovered that the service sector contributed the most in general When combinedwith considerable real output growth in the service sector comparable to that of theindustrial sector, this shows that services are already a major source of growth in Asia.Another encouraging aspect is that the proportion of service sector output exported inmostAsiancountriestendstoriseovertime.
In conclusion, the author expects the influence of banking sector development onindustrial sector development in Southeast Asian countries to be negative The authoranticipatesadetrimentalinfluenceofbankingsectordevelopmentonagricultural sector development in these nations Last but not least, the author predicts a positiveimpactofbanking sectordevelopmenton servicesectordevelopment.
Wearenowfocusingontheprospectthateconomicactivitymayfuelthedevelopment of the financial sector Bank lending activities are generally vulnerable toeconomic cycles Credit booms, for example, are associated with periods of economicdevelopment and are then reversed during periods of economic collapse (Mendoza
&Terrones,2008).Forexample,duringtimesofeconomicexpansion,thef i n a n c i a l sector, particularly the banking sector, ministers to offer a significant amount of creditto the private sector Recessionary forces from an economic downturn that raises thequantity of bank NPLs are likely to drive banks to limit credit extensions Banks arebeing forced to reduce their credit extensions even further due to capital adequacy andregulatoryoversight.
Building on this logic, the author contends that as the real sector develops andexpands(i.e.,theindustrialsector,agriculturalsector,andservicesector),itcaninfluence the development oft h e b a n k i n g s e c t o r P r e v i o u s r e s e a r c h h a s s h o w n t h a t thereisabidirectionalrelationshipbetweenbankingdevelopmentandeconomicgrowt h A summary of empirical works on this subject is presented, for example, byNyasha&Odhiambo(2014).Theauthorargues,ashasbeenshowninpreviousresearch,tha teconomicstructure,anddevelopmentoftherealsector,arefactorsinfluencingfinancialinstitutio ns'development.Thesehypothesesareasfollows:
Hypothesis 4: The expansion and growth of the industrial sector have a favorableimpactonthedevelopmentofthebankingsectorinSEAcountries.
Hypothesis5: The development and growthoftheagriculturesectorhaveabeneficialimpactonthedevelopmentofthebankingsect orinSEAcountries.
In chapter 2, the author gave an overview of the development of the bankingsectorinSoutheastAsiancountriesandprovidedpreliminaryinformationontherelat ionship between the development of the banking sector and the development andgrowthof economicsectorsinSoutheastAsia.Also,inthischapter,theauthormentioned many studies on the same topic as the previous authors and different resultswere obtained from each study because of the difference in time and research scope.From these theories, the author has built six hypotheses for the study, as well as ageneralresearchmodel.
Step 1 Finding and deciding research problems
Step 2 Construct a theoretical framework and literature review
Step 3 Data collection and processing
Step 4 Processing and analyzing research results
In this chapter, the author presents the process and methods of data collection andprocessingtoconducttheresearch.Thevariablesusedinthestudyhavebeenthoroughly summarized by the author From there, the author proceeds to set up anempirical methodology.
Researchprocess
Step2:Theauthorconsiderstheoreticalframeworksandtheoreticalfoundati onsrelatedto therelationship betweenthebanking sectorandtheeconomy.
Step 3:The author synthesizes documents, policies, journals, doctoral theses related to the topic both at home and abroad The data is collected from reputable andreliable sources such as the World Bank, the International Monetary Fund, Data Line,andtheir related reports.
Step 4:With the support of Hausman test, the author chose the most suitablemodel: OLS and DOLS with fixed-effect and solved the autocorrelation problem Afterthat,theauthor discussestheresultsfound.
Dataandsample
The sample includes six Southeast Asian countries: Brunei, Indonesia, Malaysia,Singapore,Thailand,andVietnam.IusedannualmacroeconomicdatafromDatast ream, the World Bank's World Databank, the International Monetary Fund, andtheirannualreportsfortheperiod2008–2020(seeTable3.1).Authormeasureindustrial sector, services sector, and agricultural sector by the value added by thesesectorasa percentageofGDP.
Theauthorestimatesthedevelopmentofthebankingsectorusingthreeparameters. First,BANK1represents banks' share of domestic lending to the privatesector as a percentage of GDP Only credit extended to the private sector by depositoryfinancial institutions is included in this variable (i.e., banks) This ratio reflects thesignificanceofthefinancialsector,particularlydepositmoneyinstitutions,inthefinancing of the economy (Robert V Levine, 2003); it also evaluates the activity offinancial intermediaries in one oft h e i r p r i m a r y f u n c t i o n s , w h i c h i s t o c h a n n e l s a v i n g s to investors. The metric is regarded as a good predictor of banking sector development(e.g:Berkesetal (2012);Ductor&Grechyna(2015)).
Second,BANK2isthefinancialsector'sshareofdomesticcreditasapercentage of GDP, which represents the depth and scale of the banking sector This metric hasbeen widely utilized in the literature (e.g: Ductor & Grechyna (2015); Eichengreen etal (2011)) and is regarded as a good predictor of financial sector expansion whencomparedtootheroptions.
Country Countrygroup Economy Mainsector(inGDP) Brunei
Singapore Developed/Advanced Highincome Service
Vietnam Developing country Lowermiddle income Service
The third indicator isBANK3, which shows how many commercial bank branchesthereareper100,000adults.Branchofficesofcommercialbanksserveasretaillocations for their customers, providing financial services, and are physically separatedfrom their main offices, but are not organized as legally independent corporations,whichi s u s e d t o a s s e s s t h e b a n k i n g s e c t o r ' s p r o g r e s s i n t e r m s o f f i n a n c i a l a c c e s s (Sahayetal.,2015).Customersshouldbeservedby morecommercialbankbranchesin a country with a more advanced banking system More specifically, increased accesstoa n d u s e o f f i n a n c i a l s e r v i c e s i s c o n n e c t e d w i t h d e c r e a s e d f i n a n c i n g b a r r i e r s f o r individuals and enterprises, which can broaden opportunities for all A stable financialsystemthatstimulatesefficientsavingsandinvestmentisalsorequiredfora function ingdemocracyandmarketeconomy.Manyfactorsinfluenceaccesst o financialservices,inc ludingavailability,cost,andservicequality.Creditmarketdevelopment and growth are dependent on fast, reliable, and accurate data on users'creditexperiences.
The author estimates the development and growth of the agricultural, industrial,and service sectors using the following parameters:AGRDEV,INDDEV, andSERDEVrepresentthedevelopmentoftheagricultural,industrial,andservicesectorsres pectively,asmeasuredby theindustry'svalueaddedasapercentageofGDP.AGRSIZE,INDSIZE,SERSIZErepresent the growth of the agricultural, industrial, andservice sectors respectively as measured by the first difference in the natural logarithmoftherealvalueaddedof thesectorinUSD(whichisequivalent topercentgrowth).
1) GDP per capita is a measure of a country's total economic output divided by thenumber of people and adjusted for inflation (GDP) It is used to compare livingstandardsbetweencountriesandthroughouttime.
2) GDPgrowth(∆GDP),asdeterminedbythefirstdifferenceinthenaturallogarithmofre alGDP percapita.
3) The net foreign asset (FAGDP) (Vermeulen & de Haan, 2014) is the value aftersubtracting the value of foreign assets owned by a country from domestic assetsowned by foreigners as a percentage of GDP, adjusted for changes in values andexchangerates.
4) Government spending (GOVGDP), as measured by general government finalconsumption expenditures as a proportion of GDP Government spending isemployeda s a m e a s u r e o f m a c r o e c o n o m i c s t a b i l i t y , w h i l e t r a d e o p e n n e s s i s utilized to indicate the economy's accessibility in empirical studies (e.g Atif, R.M., Jadoon, A., Zaman, K., Ismail, A., & Seemab (2010); D Allen (2000)).Governmentspendingcansloweconomicgrowthbycrowdingoutprivateinv estment and causing inflationary pressures due to the necessity for monetaryfinancingoffiscaldeficits(D.Allen,2000).
5) Annual percentage inflation (INF) as calculated by the GDP deflator. Inflationmayhaveanimpactoneconomicgrowththroughthebankingsectorb y lowe ringtheoverallamountofcreditaccessibletobusinesses.Inflationarypressures can reduce the real rate of return on assets Lower real interest ratesdiscourage saving while encouraging borrowing. New borrowers entering themarket at this moment are more likely to be of lower quality and to default ontheir loans Banks may curtail lending in response to the combined effects ofreduced real returns on loans and an influx of riskier borrowers (Chowdhury,2002).
6) The interest rate (INT), as defined by the real interest rate percentage, is the rateat which borrowers pay interest on money borrowed from a lender Interest ratemovements have a direct impact on the daily lives of all economicentities(Dotsey,1998).
7) Investment (INV), calculated as a percentage of GDP by gross fixed capitalcreation In terms of macroeconomic policy, gross fixed capital creation, whichaccounts for the majority of domestic investment, is regarded as an importantprocessthathasthepotentialtoboosteconomicgrowth (Xu,2000).
8) Trade openness (TRADE), calculated as total trade as a percentage of GDP,which is computed as a proportion of GDP export share to calculate the role andinfluenceoftradeonGDP.Thisisanindexthatreflectsaneconomy'sappropriatelevel ofopennessandservesasanimportantbasisforFDIinvestment decisions(Yanikkaya(2003);Silajdzic&Mehic (2018)).
Symbol VariableName Definition Pre-research
AGRDEV The development of theagriculturalsector
The value added bytheagriculturalsector asa percentageof GDP
INDDEV The development of theindustrialsector
The value added bytheindustrysectorasa percentageof GDP
SERDEV The development of theservicesector
The value added bytheservicesectorasa percentageof GDP
AGRSIZE The growth of theagriculturalsector
The first difference inthe natural logarithmof the real value addedbyagriculturalsec tor inUSD
INDSIZE The growth of theindustrialsector
The first difference inthe natural logarithmof the real value addedbythe industrysector inUSD
Thefirstdifferenceinthe natural logarithmtherealvalue added by the industrysectorinUSD
The share of domesticcredittoprivates ectorbybanks
The share of domesticcredittoprivates ector by banks as apercentageofGDP
(Robert V. Levine,2003), (Berkesetal.,2012), (Ductor& Grechyna,2015)
Theshareofdomesticcre dit provided byfinancialsectorasa percentageofGDP
Thenumberofcommer cialbank branches(per100,000ad ults)
Symbol VariableName Definition Pre-research
The first differencein the naturallogarithmof GDPpercapitareal
FAGDP Netforeignasset Thenetforeignassetas a percentageof GDP
The finalconsumptione xpenditures ofgeneralgovernm ent as apercentageofGDP
INF Inflation The GDP deflatorin annualpercentage (Chowdhury,2002)
INT Interestrate Therealinterest rateinpercentage (Dotsey,1998)
INV Investment Grossfixedcapitalfor mationasa percentageto GDP (Xu,2000)
Empirical methodology
TheauthorprimarilyusedOLStoevaluatetheeffectsofbankingsectordevelopmentoni ndustrialandagriculturalsectordevelopment.Becausethedevelopmentofthemanufacturin g,agriculture,andservicesectorsislikelyt o continue,t h e a u t h o r e s t i m a t e s a s e r i e s o f b a s e l i n e p a n e l d y n a m i c O L S r e g r e s s i o n s
(Hypotheses1,2,3).Thefollowingmodelistheauthor'sreferencetothemodelinthestudyo fTongurai&Vithessonthi(2018).
To test Hypotheses 4, 5, 6, the author estimates different variants of the baselinepanel dynamic OLS regression shown below The following model is the author'sreferencetothemodelinthestudyofTongurai&Vithessonthi (2018).
BANK i,t = 1 BANK i,t-1 + 2 INDDEV i,t + 3 AGRDEV i,t + 4 SERDEV i,t +CV i,t
INDDEV:the indicator of industrial sector developmentAGRDEV:theindicatorofagriculturesectordev elopmentSERDEV:the indicator of services sector developmentBANK:theindicatorofbankingsectordevelopm ent
Toadjustforprobablepersistenceinthedevelopmentoftheindustrial,agricultural,ands ervicesectors,theauthorincorporatedaone-periodlagofthedependentvariableasaright- handsidevariable.
BankingsectordevelopmentisdemonstratedthroughBANK1,BANK2andBANK3.Control variables include real GDP per capita, GDP growth, net foreign asset,government spending,inflation,interestrate,investmentand tradeopenness.
TheauthorprovidedanoverviewofthesixSEAcountriesinvestigatedinChapter 3 The author carefully outlines the sources of data, introduces the variablesused in the study, and past studies that employed those variables Finally, the authorhighlights themodelsthatwillbeusedinthesubsequentchapters.
The author offers an overview of the variables used in the research, checks theselection of acceptable models, and analyzes the outcomes of empirical research in sixSoutheast Asian nations from 2008 to 2020 in this chapter Stata 15 was used to assisttheauthor intheresearchprocess.
Descriptivestatistics andunivariateanalysis
Table 4.1 displays descriptive statistics for key variables throughout the entiresample The author collected 78 observations from 2008 to 2020 of six SEA countries:Brunei, Indonesia, Malaysia, Singapore, Thailand, and Vietnam Other countries inSEAwerenotselectedtoparticipateinthestudyduetolackofdata.
To generate estimations, author used descriptive statistics, which provide themean,median,standarddeviation,minimumvalue,andmaximumvalueof1 4 variablesg atheredinthestudy:AGRDEV,INDDEV,SERDEV,BANK1,BANK2,BANK3,GDP,∆GDP
,FAGDP,GOVGDP,INF,INT,INV,andTRADE.Byofferinga comprehensive perspective of the data, the author will be able to discover the variousobservationsthatexistinthestudysamplesize.Theauthoralsowinsorizesa l l variabl es at the 5 percent and 95 percent quantiles to reduce the influence of outliersandpossible recordingerrors.
The following table presents the descriptive statistics of the variables based onthedataprocessedusingStata15software:
Variable Mean Median Std.Dev Min Max N
The author concerned thatBANK1,BANK2andBANK3may measure the sameconstructbecausetheircorrelationishighandstatistically significant(Table4.2),meaning that these variables must be entered separately into the regression to avoid themulticollinearity problem.Inflation(INF)andrealinterestrate(INT)arelikewisesubstantially connected (r = -0.88, p-value < 0.01).
As a result, author elected to utilizesolely the real interest rate in our regression analysis, because it can be used as a proxyformonetarypolicy.
In addition, the author has tested whether the independent variables in the modelhave multicollinearity and correlation problem The final results show that the modeldoesnotsufferfrommulticollinearityandcorrelation problem(seeAppendix1,2).
Banking sectorinSoutheastAsiaoverview
Over the last decade, developing markets, particularly the Asian market, havebeen the primary focus of investors and scholars, with one of the Asian markets beingoneofthemostprominentisthemarketinSoutheastAsia.BruneiDarussalam,Cambodi a, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand,Timor- Leste, and Vietnam are the current members of the SEA This is also one of theworld'sregions witha dy nam ica ll y developingeconomy.W h e n discussing
Asia, the Association of Southeast Asian Nations (ASEAN) must be included. ASEANis made up of ten countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,thePhilippines,Singapore,Thailand,andVietnam.WithaGDPof$2.8trillion,ASEA
N is the world's seventh largest economy (Asian Century Institute (2016), US-ASEAN Business Council (2021)) Despite the volatility caused by the 1997–1999financial crisis and the global financial crisis (Duong & Huynh, 2020), the ASEANeconomieswereabletomaintainarespectablegrowthrate.ASEANeconomiesdevel oped at a phenomenal rate of roughly 5% between 2014 and 2019 (ASEANStatistical Yearbook 2021, 2021) Given the ASEAN economy's present developmentpace,itisexpectedthatitwillbetheworld'sfourthlargesteconomyby2030(Aust ralian Government, 2021) In recent years, the agricultural sector's part of SEAcountries'GDPhasfallen(despitecontinualproductivity improvement),whiletheproportion of the service industry has expanded, bringing several benefits to thesecountries.
ASEANmembercountrieshavemadesignificanteffortstostrengthenthesoundness and efficiency of financial institutions in order to facilitate the developmentofmoneyandcapitalmarkets(Turner,2012).Commercialbanksarethemostpr ominent and dominating financial institutions in the ASEAN region (V De Leon,2020) They control more than 80 percent of ASEAN's total financial assets (Turner,2012) The banking industry in these countries has grown rapidly in recent years, andthe banking system is continuously becoming stronger and more innovative in order tokeep up with the trends In his research, Satya Sekhar (2013) has successfully arguedthat financial innovation helps a developing economy retain its competitive edge byallowingforittomatchthebenefitsofanexpandingeconomy.Now,thereisawidespread belief that financial innovation is an essential component of the financialsystem,anditssignificancecannotbeoverstated(Aluko &Ajayi, 2018).Italsoplaysa significantpartintheeconomicofacountrydevelopment(Laevenetal.,2015).Recognizing the value of financial innovation, Southeast Asian banking sectors areconsiderably boosting investment in digital innovations and developments (Ho et al.,2018).Becausebanksalreadyhaveaccesstovastvolumesofdata,theymakeconsiderable useofinformationandfinancialtechnologies.Itassistsbanksinunderstandinganymarketmo vements(Berger,2003).
The effects of banking sector development on industrial sector,agriculturalsectorandservicesectordevelopment
The effects of banking sector development on industrial sectordevelopment
Table4.3columns(1),(2),and(3)offerpanelOLSregressionresultsofindustrial sector development, whereas columns (4), (5), and (6) present simple paneldynamicOLSregressionresultsofindustrialsectordevelopment.Thedependentvaria ble is INDDEV, which represents the value added by the industry sector as apercentageofGDP.
As previously noted, because banking sector development measures are highlyconnected,weenterBANK1,BANK2,andBANK3indistinctcolumns(1),
(3) The results of the OLS method reveal that the development of the banking industryhas an impact on the development of the industry In which factors represent thedevelopment of the banking industry:BANK1,BANK2andBANK3have a negativeinfluence According to the author, some coefficients computed on other variables havethe predicted sign For example, whereas government expenditure (GOVGDP) has anegative impact on industrial sector development, investment (INV), as measured bytotal fixed capital formation as a proportion of GDP, has a negative impact while tradeopenness(TRADE)hasapositive effecton industrialsector development.
INDDEV INDDEV INDDEV INDDEV INDDEV INDDEV
Because industrial sector development might be continuity, author estimate asimple panel dynamicOLS regression usingthe dependent variable's one-year lag astherightvariableincolumns(4),
Columns (1) and (4) reveal that the coefficients onBANK1indices assessing thedevelopment of the banking industry is statistically significant Overall, the findings ofthe author support the notion that the development of the banking sector has a negativeeffect on the development of the industrial sector, which is consistent with the firsthypothesis.
The effects of banking sector development on agricultural sectordevelopment
Author estimate OLS regressions of agricultural sector development to examinetheeffectofbankingsectordevelopmentonagriculturalsectordevelopment.Thedep endent variable isAGRDEV, which represents the agricultural sector's value addedasa proportion ofGDP.
Table 4.4, columns (1), (2), and (3) offer panel OLS regression results foragriculturalsectordevelopment,whereascolumns(4),(5),and(6)presentpaneldynamic OLS regression results for agricultural sector development Looking at thecoefficientsonB A N K 1 a n d BA NK 2a cros scolumns (1 ),
(2 )a nd (3 ), th e authorf in ds thatitis negativeandstatisticallysignificant,implyingthatbankings e c t o r development is inversely associated with agriculture sector development The authortakes these findings as empirical evidence to support the idea that the development ofthe banking sector (or the size of the banking/financial system) reduces the agriculturesector's contribution to the economy When lagged agricultural sector development isadded as a right-hand side variable in columns (4), (5), and (6), author found thatBANK1,BANK2, andBANK3lose statistical significance It is worth noting that thecoefficientsforlaggedagriculturalsectordevelopmentarebothpositivea n d statisticallysigni ficant,showingthatagriculturalsectorimprovementislong-lasting. effectsofbankingsector developmentonagriculturalsectordevelopment
AGRDEV AGRDEV AGRDEV AGRDEV AGRDEV AGRDEV
The findings in Table 4.4 appear to indicate that the banking sector has littleeffect on the agriculture sector's relative importance In other words, for the averagecountry,bankingsectordevelopmenthasnegativeeffectonagriculturesectordevelo pment(hypothesis2).
Table 4.5 columns (1), (2), and (3) offer panel OLS regression results of servicesectordevelopment, w her eas columns( 4) ,
(5 ), and( 6) pr ese nt simple panel dy nam ic
OLSregressionresultsofservicesectordevelopment.SERDEVisthedependentvariable,an ditrepresentsthevalueaddedbytheservicesectorasaproportion ofGDP.
SERDEV SERDEV SERDEV SERDEV SERDEV SERDEV
TheauthordiscoveredthatthecoefficientsonBANK1andBANK2acrosscolumn(2)ar epositiveandstatisticallysignificant,showingthatbankingsectordevelopment is proportionate to service sector development According to the author,these data provide empirical evidence that the growth of the banking sector (or the sizeofthebanking/financialsystem)increasesthecontributionoftheservicesecto rtothe economy In columns (4), (5), and (6), the author estimates a basic panel dynamic OLSregression with the dependent variable's one-year lag as the right – hand side variable.Thelagcoefficientforservicesectordevelopmentispositiveandstatisticallysignifi cant, showing that service sector development is persistent.C o l u m n s ( 4 ) ,
( 5 ) , and( 6 ) s h o w t h a t t h e c o e f f i c i e n t s o n a l l t h r e e i n d i c e s a s s e s s i n g b a n k i n g i n d u s t r y development are not statistically significant Overall, the author's findings support theassumption that the development oft h e b a n k i n g s e c t o r p r o m o t e s t h e d e v e l o p m e n t o f theservicesector,whichisconsistentwithhypothesis3.
The effects of banking sector development on industrial sector,agriculturalsectorandservicesectorgrowth
Theeffectsofbankingsectordevelopmentonindustrialsector growth 44
Table 4.6 shows the panel OLS regressions ofINDSIZE, the first difference in therealvaluecontributedbyeach industrysectorin USD.
INDSIZE INDSIZE INDSIZE INDSIZE INDSIZE INDSIZE
(2),and(3)showtheoutcomesofpanelOLSregressions,whereascolumns(4), (5),and (6)showthe outcomesofsimple panel dynamicOLSregressions.
Looking at all the columns in Table 4.6, we see that banking sector development has noeffect on industrial sector growth because the coefficients onBANK1,BANK2, andBANK3are not statistically significant at the 5% level These findings provide credencetotheassumptionthatbankingsectorexpansionisunrelatedtoindustrials e c t o r gr owth.
The effects of banking sector development on agricultural sectorgrowth
Dependent variable in Table 4.7 isAGRSIZE, which is the first difference in theagriculturesector's realvalue addedinUSD.
AGRSIZE AGRSIZE AGRSIZE AGRSIZE AGRSIZE AGRSIZE
( 2 ) , a n d ( 3 ) p r e s e n t p a n e l O L S r e g r e s s i o n r e s u l t s , w h i l e c o l u m n s (4), (5), and (6) present simple panel dynamic OLS regression results withAGRSIZEisthe lag variable The author discovers that GDP growth and interest rates are beneficialtoagriculturalsectorgrowth.Lookingatthecoefficientsonbankingsectordevelopment measures, we see that banking sector development has a negativee f f e c t onagriculturalsectorgrowth.ThefindingsinTable4.7indicatethatbankingd evelopmenthasanegativeimpactonagriculturesectorgrowth.
Thee f f e c t s o f b a n k i n g s e c t o r d e v e l o p m e n t o n s e r v i c e s e c t o r g r o w t
SERSIZE SERSIZE SERSIZE SERSIZE SERSIZE SERSIZE
Table 4.8 shows the panel OLS regressions ofSERSIZE, the first difference in thereal value contributed by each service sector in USD Columns (1), (2), and (3) showthe outcomes of panel OLS regressions, whereas columns (4), (5), and (6) show theoutcomesofsimplepaneldynamicOLSregressionswithSERSIZEis thelagvariable.
Looking at all the columns in Table 4.8, we see that banking sector developmenthas no effect on industrial sector growth because the coefficients onBANK1,BANK2,andBANK3are not statistically significant at the 5% level These findings providecredence to the assumption that banking sector expansion is unrelated to service sectorgrowth In addition, the results also show that GDP growth and interest rates have apositiveinfluenceonservicesectorgrowth.
The effects of economic structure and growth on banking sectordevelopment
Theeffectsofeconomicd e v e l o p m e n t o n b a n k i n g s e c t o r dev elopment
The findings of panel OLS regressions of banking sector development are shown inTable4.9.
BANK1 BANK2 BANK3 BANK1 BANK2 BANK3
In columns (1) and (4), the dependent variable isBANK1 In columns (2) and
(5),the dependent variable isBANK2 In columns (3) and (6), the dependent variable isBANK3 Columns (1), (2), and (3) present panel OLS regression results, while columns(4),
(5),and(6)presentsimplepaneldynamicOLSregressionresults Ineachofthe six models,theauthorcombinesAGRDEV,INDDEV,andSERDEV.
Thefindingsrevealthatagriculturalsectordevelopment(AGRDEV)hasadetrimentali mpactonbankingsectordevelopment(columns1and2).T h e developmentoftheindustrialands ervicesectors(INDDEVandSERDEV)hasafavorable impact on the development of the banking industry (column 4) Based on theresults of this study, countries with higher levels of agricultural sector developmenthavelowerlevelsofbankingsectordevelopment(asmeasuredbyBANK1a n d
Theeffectsofeconomicgrowthonbanking sectordevelopment
To see if the results in Table 4.9 are still robust after adjusting for industrygrowth, the author re-estimates the parameters in Table 4.9 with lagged dependentvariables by includingAGRSIZE,INDSIZEandSERSIZEas explanatory variables Theresults are reported in Table 4.10 The dependent variable in columns (1) and (2) isBANK1 In both models, the coefficients onINDSIZEandSERSIZEare negative andstatistically significant, demonstrating that industrial and service sector growth have anegativeeffectonbankingsectordevelopment.ThecoefficientsonINDDEVandSERDEVin column (2) of Table 4.10 are positive, which is consistent with the resultsin column (4) of Table 4.9 The dependent variable in Table 4.10 columns (3) and (4) isBANK2.ThepatternofthedatainTable4.10columns(3)and(4)issimilartothatof
BANK1 BANK1 BANK2 BANK2 BANK3 BANK3
The dependent variable in Table 4.10 columns (5) and (6) isBANK3, althoughBANK3doesnotloseitsstatisticalsignificancewhenlaggedbankingsectordevelop ment(Thenumberofcommercialbankbranches(per100,000adults))isincluded as a right- hand side variable in columns (5) and (6), the author could not findany link between economic growth and development for banking sector developmentunderthisvariable.
In general, through this result, the author once again affirmed the positive impactoftheindustrialandservicesectorsonthedevelopmentofthebankings e c t o r Indu strial and service growth has a negative impact on the development of the bankingsectorandhasnotfoundanyevidencetodeterminetherelationshipbetweenagricultu ralsector growth andbankingsectordevelopment.
In chapter 4, the author presents and analyzes the results of empirical research onthe two-way relationship between the development of the banking sector and economicgrowthanddevelopmentthroughthreemainsectors:agriculture,industry,a n d serv ices, from 2008 to 2020 in six Southeast Asian countries at a 5% significance level.Research results show that the relationship between banking sector development andgrowth and agricultural sector development is negative in both directions, while therelationship between banking sector development and services is positive Finally, theinfluenceof thedevelopmentoftheindustrial sectoronthedevelopmentofthebankingsectorispositive,whiletheoppositedirectionisnegative.
In this chapter, the author summarizes the research results achieved in the previouschapter.Atthesametime,onthebasisofresearchresults,theauthormakesrecommendat ionstohelpnotonlystateagenciesbutalsobankingadministratorsimprove operational efficiency Finally, the author discusses the topic's limitations anddirectstheresearchtowardmoredetailedresearchonfutureissues.
Conclusion
Identifyingand studying the relationship between banking sectord e v e l o p m e n t and economic growth and development is critical not just for bank administrators butalso for investors, state banks, and the government If bank operators and managers, aswell as the government, are aware of this, they will be able to design policies that willregulate and promote the development of the banking industry and the economy in asensiblemannerinthefuture.Therehavebeenmanyresearchpapersonthisrelationshipbefo re,whichcreated asolid basisfortheauthortocarry outthisstudy.Forindustrialse ctordevelopment,developingcountriesshouldprioritizethemodernization of their banking systems In contrast, if the development of a bankingsector follows the development of an industrial sector, a country must first assist in thedevelopment of the industrial sector As a result, author examines whether economicstructure and growth promote banking sector development In this study, the authorassumes economic growth and development through the three most essential sectors:agriculture, industry, and service The author examines whether there is a relationshipbetween banking sector development and sectoral developmentand growth in thisstudy.
The development of the banking sector is believed has a varying impact on thedevelopment of the industrial sector, the development of the agricultural sector, and thedevelopment of the service sector In different periods, these impacts can be different.Here, the author studies the relationship between the development of the banking sectorand the growth and development of the agricultural, industrial, and service sectors from2008 to 2020 Panel data from six countries wereu s e d b y t h e a u t h o r i n t h e s t u d y , which spanned a 13-year period beginning in 2008 and ending in
2020 Based ontheoretical foundations and empirical data The study has offered the construction of aresearch model and the selection of research methodologies appropriate to the nature ofthe research data as well as the research aims and research questions based on theexperience presented in the preceding chapters Following the tests, the OLS methodwith period- fixed effect and country-fixed effect was calculated to be the best methodfor the study.
As these sector development and growth might be persistent, authorestimated a simple panel dynamic OLS regression by including a one-year lag of thedependent variable as a righthand side variable in columns The study has drawn thefollowingresults:
The impact of the development of the banking sector on the development andgrowthoftheeconomy:
Table 5.1: The impact of the development of the banking sector on the developmentandgrowthoftheeconomy
Accordingtotheauthor, thedevelopmentofthe bankingsectorhasanimp acton the development of the economy through three major sectors: agriculture, industry,and service In which the development of the banking sector has a detrimental impactontheagricultureandindustrialsectorswhilehavingapositiveimpactonthedevelopm entoftheservicesector.Furthermore,theauthordiscoversthatthedevelopmentofthebanking sectorhasanegativeimpactonthegrowthoftheagriculturesector, whereas industryand servicesare unaffected.
Table 5.2: The effects of economic development and growth on banking sectordevelopment
According to the research results, the development of the agricultural sector hasa negative influence on the development of the banking sector, while the developmentof the industrial and service sectors has a positive effect In addition, the growth of theagricultural sector has no effect on the development of the banking sector, and thegrowthoftheindustrial andservicesectorshasanegativeeffect.
In summary, the author finds that the influence of banking sector developmentand sectoral economic growth is generally two-way Southeast Asian countries shouldfocus their resourceson developing the banking, industrial andservice sectors.
Inparticular,thedevelopmentoftheindustrialsectoristhemostimportantbecauseindustry creates a large amount of material wealth for society Industry is the key topromotingthedevelopmentofothereconomicsectorssuchastrade- services,agriculture, becauseindustryprovidesmostofthemeansofproduction,buildsmat erialandtechnicalfoundationsforalleconomicsectors.Inaddition,thedevelopment of the industrial sector also creates favorable conditions for the effectiveexploitationofnaturalresourcesindifferentterritories,creatingthepossibilityofexp anding production, labor market, creating many jobs, increase income, strengthennationalsecurity.
Limitationofthe thesisandfutureresearchdirection
Besidestheobtainedresults,theresearchtopicstillhascertainlimitations.Research time is limited; the thesis only focuses on the years 2008 to 2020, a ratherlimited period compared to previous studies on the same topic The data has not beenupdated 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 onlycollects data from six countries that represent the region Therefore, the data does notinclude all 11 Southeast Asian countries In addition, because the number of researchcountries (n 6) is smaller than the number of years of research (t = 13), the authorcannot 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 topicsin the past decade, and the variables in the model have a solid theoretical and practicalbasis.
First, by increasing the number of years of observation, extending the samplinginterval will improve the accuracy of future study results At the same time, expandingthescopeofresearchfromSoutheastAsiatoAsia,theimpactofbankingsectordevelo pment on the economy in underdeveloped, developing, and developed countriesmaybedifferent.Thisneedstobestudiedinmoredepth.
Second, in addition to the variablesBANK1,BANK2andBANK3, which are twomeasures for thedevelopment of thebanking sector, the study may include othervariables 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 theagricultural,industrial,andservicesectors.Findingvariablesthatrepresentthesefactors moreaccuratelycancreateamorecomprehensivemodel.
In Chapter 5, the author summarizes the main results of the thesis as well as makesrecommendationsforSoutheastAsiancountriestofocusmoreondevelopingthebanki ng and industrial sectors, followed by the development of the service sector Atthe same time, the thesis also points out the problems and limitations that still exist intheresearchprocessandthedevelopmentdirectionforfutureresearch.
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