BRI a Single Initiative, Multiple Opportunities of Regional Economic Integration: Impact of Banking Sector towards Sustainable Economic Growth

Abstract

Belt and Road initiative is believed to be a global development strategy of 21st Century. This global mega project has embarked on infrastructure and energy projects in its early phase of projects in many countries. This study surveys the effect of the banking sector (BS) and economic growth (EG) in selected BRI (Belt and Road Initiative) member countries over the period of 1990-2017 by using fixed and random effect model. Furthermore, to choose among random (RE) and fixed effect method (FE), this research utilizes Hausman test. For this purpose, various indicators of banking sector have been chosen such as domestic credit (dc), liquid liabilities (llgdp) and broad money (M2). Alternatively, control variables are fdi and inf. Results shows that the banking sector indicators have a positive and substantial effect on the economic growth of BRI countries in both random and fixed effect models. Alternatively, the result of Hausman test shows that fixed effect is suitable as compared to random effect method. Hence, this study concludes that the two key factors of economic growth in BRI countries are banking sector (BS) and fdi. In addition, the macro stability i.e. control on inflation is also needed to avoid its negative effects. In sum, the study recommends that BRI economies should further develop banking sector for sustainable economic growth. Finally, for robustness check the present research utilizes Fully Modified Least Square Method (FMOLS) and Dynamic Least Square Method (DOLS).