Financial development and economic growth: Exploring the impact of financial systems, stability, and institutional quality on economic performance

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Abstract

This study investigates the relationship between financial development and economic growth in Albania from 2012 to 2022, emphasizing how various aspects of financial development — particularly financial inclusion, stability, and institutional quality — impact economic performance. Employing quantitative analysis of secondary data, the research explores the effects of key financial indicators such as banking services efficiency, stock market development, and access to credit on macroeconomic outcomes. Findings reveal that significant enhancements in financial systems correlate positively with economic growth, highlighting the crucial mediating roles of improved financial inclusion, market stability, and governance (Demirgüç-Kunt et al., 2018). These results underscore the importance of robust financial infrastructure in fostering sustained economic development, especially in transitional economies like Albania. By providing empirical evidence from a unique transitional context, this study contributes to the literature by detailing specific mechanisms through which financial development can facilitate economic growth. It suggests that policymakers focus on strengthening financial frameworks to optimize economic outcomes. Future research could broaden these insights by incorporating qualitative methods and additional financial indicators. This research holds relevance for economic strategists and policymakers aiming to enhance economic growth through targeted financial sector improvements.

Keywords: Financial Development, Economic Growth, Albania, Banking Sector, Financial Inclusion, Financial Stability

Authors’ individual contribution: Conceptualization — B.T. and A.H.; Methodology — B.T. and A.H.; Validation — B.T.; Formal Analysis — B.T., A.H., M.K., R.K., and A.T.; Investigation — A.H.; Resources — B.T., A.H., M.K., and R.K.; Writing — Original Draft — B.T., A.H., M.K., and R.K.; Writing — Review & Editing — B.T., A.H., M.K., R.K., and A.T.; Visualization — A.H.; Supervision — B.T., A.H., M.K., and R.K.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G20, O16, P34

Received: 28.02.2024
Accepted: 26.08.2024
Published online: 28.08.2024

How to cite this paper: Trebicka, B., Harizi, A., Krasniqi, M., Kalaja, R., & Tartaraj, A. (2024). Financial development and economic growth: Exploring the impact of financial systems, stability, and institutional quality on economic performance. Risk Governance and Control: Financial Markets & Institutions, 14(3), 76–85. https://doi.org/10.22495/rgcv14i3p8