Prague Economic Papers 2015, 24(1):60-72 | DOI: 10.18267/j.pep.500

Causality Relationship between Financial Intermediation by Banks and Economic Growth: Evidence from Serbia

Saša Obradović1, Milka Grbić2
1 Associate Professor of Macroeconomics, Faculty of Economics, University of Kragujevac, Djure Pucara 3, 34000 Kragujevac, Serbia, e-mail: sobradovic@kg.ac.rs.
2 Teaching and Research Assistant, Macroeconomics, Faculty of Economics, University of Kragujevac, Djure Pucara 3, 34000 Kragujevac, Serbia, e-mail: mgrbic@kg.ac.rs.

This paper empirically examines the possible causal relationship between financial development and economic growth in Serbia. In this regard, the focus is on the development of financial intermediation by banks, considering the fact that the banking sector plays an important role in Serbian financial system. The empirical research is based on quarterly data for the period Q1 2004-Q4 2011 by using Toda-Yamamoto causality test. Our empirical findings suggest that process of economic growth contributes to process of financial deepening. On the other hand, the results indicate that there is a significant unidirectional causality that runs from both private enterprise credit to GDP and household credit to GDP to economic growth. Bidirectional causal relation is confirmed only between the share of bank credit to nonfinancial private sector in total domestic credit and economic growth rate.

Keywords: financial development, economic growth, Toda-Yamamoto Granger non-causality, financial system, banking sector
JEL classification: C12, C32, E51, G21

Published: January 1, 2015  Show citation

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Obradović, S., & Grbić, M. (2015). Causality Relationship between Financial Intermediation by Banks and Economic Growth: Evidence from Serbia. Prague Economic Papers, 24(1), 60-72. doi: 10.18267/j.pep.500
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