The Impact of Innovative Financial and Banking Development on the Economic Growth of Bosnia and Herzegovina

Abstract Achieving sustainable economic growth is one of the main goals of economic policy in modern countries. As previous research has shown, the development of financial system has a significant influence on economic growth. The importance of the innovative banking sector in developing countries becomes particularly important due to the insufficient evolvent of other parts of the financial system. The subject of this paper is the analysis of the impact of the banking sector of Bosnia and Herzegovina on economic growth in the period from 2000 to 2021. The aim of the study is to quantify this relationship. In this study we apllied ARDL model to determine long-term and short-term relationship between observed variables. The results show that the increase in total loans granted by the banking sector to companies from the non-financial sector has a positive impact on the development of GDP. Namely, a 1% increase in total bank credit to non-financial private sector firms leads to an increase in GDP of about 0.08% in long run and about 0.20% in short run.