The Impact of Commercial Banking Development on Russian Economic Growth

Abstract

This chapter measures the contribution of financial development to economic growth in Russia. The expansion of banking system causes institutional improvement in the economy, which results in extended and sustained economic growth due to changes in financial institutions. This chapter proposes the novel idea of principal component analysis (PCA) to overcome these problems. Then, the PCA method provides loading factors that condense financial information into a few orthogonal factors, which are used as explanatory variables. The study indicates that financial development explains both per capita GDP and its growth rate. The explanatory power of the models improves by adding control variables and econometric safeguards such as correcting for nonstationarity and multicolinerity. However, utilizing the PCA method to obtain an orthogonal set of variables to represent financial development, deepening, and concentration improves the performance of the model even further.

Citation

Naghshpour, S. and Sergi, B.S. (2018), "The Impact of Commercial Banking Development on Russian Economic Growth", Sergi, B.S. (Ed.) Exploring the Future of Russia’s Economy and Markets, Emerald Publishing Limited, Leeds, pp. 13-27. https://doi.org/10.1108/978-1-78769-397-520181002