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Investigating the effect of banking system size on the interaction of banking system performance and economic growth in Iran using the method Smooth transition regression
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Shole Bagheri pormehr1   , Yeganeh Sanaei 2 |
1- Assistant Professor, Department of Economics, Khatam University (corresponding author)
2- Master of Economics, Khatam University , yeganesanaie00@gmail.com |
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Abstract: (696 Views) |
Introduction: The growth of banks may pose problems to banks in terms of balance sheet. therefore, bank size could be one of the most effective banking variables affecting the performance of the branches of the banking system. the variables of bank size and their mutual relations with banking system effectiveness have always been considered in the majority of theoretical studies related to the banking system. the banking industry plays an important role in the economic growth of societies. On the other hand, the bank is an economic firm and the aim of each economic firm is to earn a profit, which is important in providing more and better banking facilities, so the banks are always thinking of providing more facilities and want financial resources to be directed towards full - profit goals. It is possible to say that banks are private enterprise - based enterprises, as the system of payments and intermediary is necessary for the economic growth of the community. therefore, the study of the optimal size of the banking sector with regard to its effectiveness on the country's economic growth is of particular importance in this paper.
Methodology: In this study, in order to investigate the effect of bank system size on the interaction between banking system performance and economic growth of Iran from chapter 1, 1385 until the end of 1398. in order to estimate the model of economic growth in Iran, by considering the size of the banking system, the STR model will be used in time series patterns. The standard shape of the STR is given as follows.
In that, y_t is the endogenous variable, x_t is the exogenous variable, π and θ are the parameter vectors, and STR is the transition variable, the changes of which change the coefficient of the estimator variables. The transition variable can be an endogenous variable or one of the endogenous variables, or even a third variable outside the model. The function F (St, γ, c) is also called the transition function whose value can be between 0 and 1. Accordingly, the coefficients of the STR will fluctuate between the π and θ + π values. In the transition function (which is a bounded function in terms of the transition variable of the STR), γ and c are also the slope parameter and the location parameter, respectively. The slope parameter determines the transfer rate between the two regimes and the location parameter is also the determinant of the threshold between the two regimes.
Results and Discussion: In the linear part, the average performance of the banking system with a coefficient of 0.79 has a positive and significant effect on Iran's economic growth, and in the nonlinear sector, this index with an average coefficient of 1.02 has a negative and significant effect on Iran's GDP growth. in fact, based on the results of the model, the impact of the banking sector performance on economic growth during the period of study was not static and was influenced by the size of the banking system. The number of POS and ATM with a coefficient of 0.39 and 0.27, respectively, have a positive and significant effect on the growth of Iran's GDP, which can be analyzed as follows; Applying new financial methods of electronic banking in developing countries and Iran, can be a fundamental and important factor for the country's rapid access to higher stages of development. Unemployment rate with a coefficient of 0.66 has a negative and significant effect on the growth of Iran's GDP. overdue claims with a coefficient of 0.01 have a negative and significant effect on the growth of Iran's GDP. The impact factor of the banking system performance on GDP is such that in the early years of the study, the impact of the banking sector performance on economic growth has an upward trend, so that from a negative impact has entered the range of positive impact, but finally this positive coefficient from the fourth quarter 2010 has a declining trend. In fact, the excessive size of the bank has had an adverse effect on the performance of the banking system and economic growth, so that in the early 2011, this effect has entered a negative range. Therefore, the optimal size of the banking system was experienced in 2009.
Conclusion: The aim of this study is investigating the optimal size of the banking sector with regard to its effectiveness and its impact on the country economic growth. In fact, based on existing theoretical foundations and previous empirical studies, the question was examined whether the effectiveness of banks on Iran's economic growth will change due to the change in the size of the banking system. The results of this study showed that the impact of banking sector performance on Iran's economic growth during the years under review did not have a fixed trend in the form of an inverted bell diagram, meaning that in the early period of the study with increasing banking system size, banking sector impact on economic growth trend There has been an increase, but since the late 2009, this effect has decreased. So the answer to the above question is yes. Other achievements of the model are confirmation of the positive effect of POS and bank ATM and the negative effect of unemployment rate and bank deferred claims on Iran's economic growth. According to the results, the size of the banking system has already exceeded its optimal extent and has even entered the negative impact on economic growth. Evidence of banks shifting from their original nature as a financial intermediary as well as the profitability of the banking system even during the recession of the last decade shows that the link between the banking sector and the real sector of the economy has weakened, and the excessive presence of banks in other financial markets and their disproportionate corporate governance has damaged the structure of the economy. |
Article number: 6 |
| Keywords: Banking system size, Banking system performance, Economic growth, Smooth transition regression |
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Full-Text [PDF 452 kb]
(197 Downloads)
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Article type: Research |
Subject:
Special
Received: 2022/04/4 | Accepted: 2022/05/10 | Published: 2022/12/1
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