The role of commercial banks in the development of economy mohsin hassan alvi

Gross Domestic Product (GDP)

Gross Domestic Product is the annual price of goods and services offered in a country. The relationship of banking sector with the prices of goods within the country can be very strong. In a study, an association between ROA and macroeconomic variables was found (Pasiouras, Tanna, and Zopounidis, 2009). They suggested a significant and positive correlation between bank profitability and GDP. Bank profitability is a financial factor, which have the tendency to fluctuate GDP. Economical stability of a country can be measured through the GDP (Kim, 2015). On the other hand, a study is focusing on the services of electronic banking and its outcomes suggest, ROA and GDP have negative correlation with each other. Another study conducted by Sastrosuwito and Suzuki (2012) on the Indonesian banking industry also points out an insignificant correlation between the profitability of banks and annual growth rate (Sastrosuwito 2012). According to World Bank, with the growing production at national level, the value of gross domestic product (GDP) has reached above 41, 787.47 USD that put a drastic effect on local industries and international market. The methods of calculating gross domestic product (GDP) were also introduced in previous attempt in order to provide more satisfactory estimated results (Solomou & Weale 1991). There were three methods were introduced that comprised on conventional calculation of 10 decades before and arithmetic average for the recent data sets. Beside these, per capita GDP has been calculated in Europe in the period of 1980 and 1995. It was revealed that the data present in the European region was different in nature and the per capita GDP vary from country to country. The values of GDP were found heterogeneity in nature across the Europe. The implication of GDP data sets were also discovered using the econometric methods like spatial autocorrelation in order to investigate the pattern and distribution of unlike GDP data (Gallo & Retur 2003).
Hypotheses
After extensive review of the literature, the following assumptions have been formed in order to facilitate the scope of research.
H1: There is significant positive impact of Banks’ ROA on Balance of Trade.
H2: There is significant positive impact of Banks’ ROA on GDP.