The Impact of Financial Sector Development on Economic Growth in Russia

The determining factor in a country's economic growth is the level of development of its financial sector. Services provided by financial intermediaries are important for the economy, and a sufficiently developed financial sector has a positive impact on economic growth. However, most developing countries have not yet reached the maximum level of financial development; therefore, by expanding the financial sector, emerging markets can achieve higher rates of economic growth, as well as reduce macroeconomic volatility. The development of the financial sector has a positive effect on investment activity in the country and, therefore, contributes to economic growth. The purpose of this study is to assess the long-term impact of the level of development of the financial sector on the rate of economic growth in Russia using an autoregressive distributional lag model (ARDL). The results indicate that an increase in the ratio of bank loans to the private sector to GDP by 1 percentage point leads to an increase in the growth rate of the economy by 1.07 percentage points. Thus, further expansion of the Russian financial sector will allow for higher rates of economic growth.