146
Journal of Finance & Economics Research - Volume 9, Issue 1 2024
By Douglas Jose Mendonca
10.20547/jfer2409103
Keywords: Spread; government effectiveness; financial intermediation.
The aim of this study was to investigate the relationship between the level of economic development, government effectiveness, and variations in financial intermediation spreads in 157 countries during the period from 2015 to 2021. The sample comprised countries from six different regions: Africa (43 countries), Asia (43 countries), Europe (42 countries), North America (15 countries), Oceania (3 countries), and South America (11 countries). These countries were categorized based on their levels of economic development, as defined by the International Monetary Fund (IMF). Banking spreads were determined as the difference between lending rates and deposit rates. Government effectiveness was assessed using a World Bank index reflecting the population's perception of public service quality. We employed a hierarchical linear regression econometric modeling approach with three levels to analyze the proposed relationships. The results indicated that 46% of the variations in banking spreads can be accounted for by the economic development levels of the countries. Additionally, banking spreads exhibited significant annual variations, with an estimated annual decrease of -0.060 during the examined period. It is worth noting that the government effectiveness index (GEI) displayed a statistically significant relationship with banking spreads. Countries with higher GEI values tended to exhibit lower levels of banking spreads. These findings underscore the concurrent influence of both economic development and government effectiveness on the banking intermediation process within the analyzed countries. This study contributes to an enhanced understanding of the determinants of banking spreads, highlighting the significance of economic development and government effectiveness as key influencers in this process.
Submission Date: 9 Sep, 2023 Reviews Completed: 13 Dec, 2023Acceptance Date: 1 Jan, 2024 Publication Date: 9 Jan, 2024