Authors: Stefanos Dourtmes, Andreas Andrikopoulos
Title: The impact of social banking on economic development
Abstract
The impact of financial growth on economic development has attracted a significant amount of research and despite the conflicting outcomes, we focused on a certain segment of the financial sector that stands out, due to its unique significance, social banking. The importance of this nexus lies within the extraordinary resilience that these ethical banks presented during the recent financial crisis of 2007-2008 and the amount of customers they have attracted, mainly due to their substantially transparent and less speculative practices.
In order to build the data set, we used all the widely available data regarding social banking activity from the site of Global Alliance for Banking on Values (https://www.gabv.org/), from where we retrieved macro-economic and financial metrics that concern 31 economies from around the world and then we classified them into two sub-samples according to the countries’ level of income. The samples cover the period between 2014 and 2018, when most economies had recovered from the financial crisis of 2007-2008 and the results of ethical banking were observable.
To investigate the association between social banking and economic development we proceeded with estimations of panel regressions of the whole sample and the two sub-samples that we built based on the figures of the 31 economies that we collected, by using a random effects model. More specifically, our regression comprised of the GDP per capita growth, which was the dependent variable, the growth of total credit provided by social banks, the growth of size of social banks which was represented by total assets growth and the DGP deflator growth. In this manner we were able to interpret the footprint of ethical banking on sovereign economic development, by measuring the accumulated activity and level of presence of the social banking institutions and their economic impact and studying the statistical significance between these variables.
Overall, it is safe to conclude that social banking operates in favour of economic development when referring to the total sample. Specifically, our empirical results for lower income economies sub-sample (which mostly comprises countries located in Asia, Latin America and Africa) provide stronger empirical evidence of the ethical banking on economic growth in that regions. The economies of this sub-sample do not share notable economic bonds or characteristics, but they all present faster economic growth and higher financial sector growth (in terms of social banking).
However, regarding the more developed regions that comprised the higher income subsample (Europe, USA, Canada and Japan), they do not exhibit a significant association between economic growth and social banking ,although this should not keep us from examining this association with a bigger sample that covers more economies, a bigger period and possibly include more variables, in the near future. Moreover, the benefits of social banking cannot be explored by measuring the size or the credit provided by ethical institutions alone. There are more aspects and contributions to global economy that should be examined and be widely presented.
