Banking sector development and its impact on economic growth in Myanmar

Abstract

This study proposes to establish how to connect Myanmar’s economic growth and the banking sector after comparing a variety of short- and long-term correlations. The data for this research are gathered from the World Bank Data for 35 financial years, starting from 1986 to 2020. This research utilizes the time series data augmented with the ARDL model to investigate banking factors, which include the private sector credit by banks and deposits and financial system liquidity liabilities to the per capita GDP. The results show that domestic credit and bank deposits positively influence GDP growth, which indicates that the financial sector and savings are important in enhancing the economy. In contrast, liquid liabilities and inflation have negative effects. Moreover, the short-run analysis finds that the past impact of variables such as GDP per capita, domestic credit, bank deposits, liquidity liabilities, foreign direct investments, and inflation influences current GDP per capita. However, the short-term change is not the same as the long-term change, as some of the lags show negative effects in most instances depending on the time keenness. These implications also imply that it is essential for the Myanmar government to go ahead with alterations aimed at improving the performance of the financial sector as well as fostering borrowers’ domestic credit demand, liquid liability maintenance, as well as low and moderate inflation to achieve sustained economic growth.