An Empirical Examination of the Impact of Banks on Economic Growth in Sierra Leone (2001-2017)

Abstract

Banking sector development is considered as an essential driver of economic growth. Thus, this study examines the impact of the banking sector on the economic growth of Sierra Leone using indicators like bank liquidity reserve to bank asset ratio, domestic credit to private sectors, interest rate spread, gross domestic savings and deposit interest rate, and gross domestic product using yearly data from the period of 2001 to 2017. An empirical model was carried out using ordinary least square regression. From the outcomes of the regression, analysis, and results, GDP is strongly influenced by some of the banking indicators especially domestic credit to the private sector. It is seen that domestic credit to the private sector has a positive and significant impact on GDP, while deposit on interest rate has a positive but insignificant impact on GDP. The other indicators such as bank liquidity reserve, interest rate spread, and gross domestic savings neither have positive nor significant to GDP. Domestic credit to the private sector tends to have a positive impact.