Emprirical analysis of financial intermediation and economic growth: The case of Macedonian economy

Darko Lazarov; Misho Nikolov; Kiril Simeonovski

doi:10.46763/10.46763/JOE2382039l

Darko Lazarov
Misho Nikolov
Kiril Simeonovski

DOI: https://doi.org/10.46763/10.46763/JOE2382039l

Keywords: Financial intermediation, economic growth, single-country regression, North Macedonia

Abstract

The main goal of the paper is to examine the relationship between the financial sector and economic growth in the Republic of North Macedonia. The Macedonian economy has been facing slow development dynamics and low rates of economic growth for a long period of time. The reasons are certainly multidimensional and identifying them is quite complex. Hence, our task in the paper is to examine the impact of the financial sector on economic growth as one of the factors. First we provide a theoretical model for the analysis of the relationship between the financial sector and economic growth, while in the second part of the paper we use a methodology based on the single-country regression analysis to investigate the relationship between the financial sector measured through the lending activity of banks to private sector and economic growth measured as real GDP growth. Furthermore, we present a comparative analysis of the trend in the level of banking intermediation. The results of the analysis indicate that financial intermediation is a significant factor for the growth of the Macedonian economy through gross investments, which depicts that improving financial intermediation and reducing the interest rate will increase investments and encourage the growth of the Macedonian economy.

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