The Impact of Banking Sector Development on Economic Growth: Empirical Analysis from Palestinian Economy

Whether banking industry development supports Palestinian economic growth or not is critical question empirically. Thus, this study examines the impact of some banking sector indicators (credit facilities, depositors fund, the number of branches, and interest rate,) on gross domestic product using quarterly data from the period of 2000 to 2015. The empirical model was carried out using ordinary least square regression to prove that output is significantly influenced by boosting banking sector toward growth. The result reveals that banking credits are positively related to economic growth. This indicates that banking industry development tends to improve productive capacity of Palestinian economy as case of supply leading. However, interest rate, customers deposits and number of branches have not significant impact on economic growth. Finally, the result of this paper provides some important lesson to the Palestinian authority policymakers: there is strong real benefit from Banking credits policy due to the significant effect on Palestinian economy.