Evaluating the role of banking efficiency, institutions and financial development for sustainable development: Implications for Belt and Road Initiative (BRI)

Abstract

This study explores the relationship between banking efficiency and financial development in the Belt and Road Initiative (BRI) economies from 2007 to 2018. The study employs three dimensions to assess financial development: (i) depth, (ii) stability, and (iii) efficiency. In the initial stage, BRI banking efficiency is quantified using Data Envelopment Analysis (DEA). Subsequently, the Generalized Method of Moments technique is applied to identify the connection between banking efficiency and financial development. The study employs fundamental structural benchmarks to evaluate disparities between actual financial development indicators and predicted values. Banking efficiency plays a crucial role in determining the depth, stability, and efficiency of financial development within BRI economies and is pivotal in closing these gaps. Strong institutional frameworks also support the advancement of the BRI’s financial development sector. Moreover, foreign direct investment positively impacts reducing financial development gaps and promoting growth in the financial sector. The study concludes that BRI member countries should prioritize banking industry reforms to enhance the stability, depth, and efficiency of their financial sectors.