Banking Sector as a Long-Term Catalyst for Economic Growth in Poland

Abstract

This study investigates the banking sector's influence on Poland's economic growth from Q4 2010 to Q1 2023. Employing the Autoregressive Distributed Lag (ARDL) model with an Error Correction Mechanism (ECM) and Granger causality, the relationship between the banking sector and economic development in Poland is explored. The model includes macroeconomic control variables such as inflation, interest rates, the domestic demand to GDP ratio, the general business climate index in the industry, and a dummy variable to account for the economic impacts of the COVID-19 pandemic and the Ukraine conflict. Findings show an inverse relationship between the bank assets to GDP ratio and GDP growth in the short run. At the same time, a positive correlation is observed in the long run, underlining the banking sector's essential role in Poland's economic progression. Additional banking variables like Return on Assets (ROA), Non-Performing Loans (NPL), and the ratio of equity to assets were analysed. However, only the bank assets to GDP ratio exhibited a statistically significant positive long-term effect on Poland's GDP. This research offers crucial insights into the complex interplay between the banking sector and economic growth in Poland, with particular emphasis on recent geopolitical and pandemic events.