Examining the effect of banking performance on the economic growth of Saudi Arabia: A Panel ARDL Approach

Abstract

This study examines the effect of banking performance on the economic growth of Saudi Arabia. The study employs panel autoregression distributed lag approach by considering 12 banks for the period between 2000-2018. The panel unit root analysis shows a mixed result of the stationary of the variable. The dynamic fixed effects (DFE) estimates show that bank performances as proxied by i.e., banks’ asset and net interest margin have long-run and short-run effects on economic growth whereas the earlier one has more influence than the latter one. In addition to this, we also observed that oil price, as a control variable, has both long-run and short-run significant and positive relationship with country’s economic growth. Thus, we recommend that banking regulation and its related policy should be supportive of the expansion of banking sector which has direct linkage with the economic growth of Saudi Arabia.