Banking, labor force, and regional economic growth: Evidence from Indonesia

Abd Rahman Razak, Wahyoe Soedarmono, Wahdi Salasi April Yudhi


This paper examines whether regional economic growth across Indonesian provinces can be affected by the role of banking and labor force. In general, our empirical findings show that banking development is indeed positively linked to regional economic growth, although this relationship is more pronounced for poor provinces. Moreover, this paper finds that the link between banking development and regional economic growth is conditional on the degree of labor force. Specifically, the positive impact of banking on regional economic growth only occurs when labor force is sufficiently low regardless of whether we observe poor provinces or rich provinces. Eventually, this paper highlights that increasing access to bank credit is essential to boost regional economic growth, especially for poor provinces or provinces with lower labor force.

JEL Classification: O16, G21, G28


How to Cite:

Razak, A. R., Soedarmono, W., Yudhi, W. S. A. (2020). Banking, labor force,and regional economic growth: Evidence from Indonesia. Jurnal Keuangan dan Perbankan, 24(2), 156-163.



Banking; Labor force; Regional economic growth; Indonesia

Full Text:



Arcand, J., Berkes, E., & Panizza, U. (2012). Too much finance? IMF Research Department.

Augier, L., & Soedarmono, W. (2010) Threshold effect, financial intermediation, and macroeconomic performance. 18th Symposium of Society for Nonlinear Dynamics and Econometrics. University of Piemonte Orientale, Italy.

Beck, T., & Degryse, H., de Haas, R., & van Horen, N. (2014). When arm’s length is too far. Relationship banking over the business cycle. BOFIT Discussion Papers 14/2014. Bank of Finland, Institute for Economies in Transition.

Bencivenga, V. R., & Smith, B. D. (1991). Financial intermediation and endogenous growth. Review of Economic Studies, 58(2), 195–209.

Bloom, D. E., Canning, D., & Malaney, P. N. (2000). Population dynamics and economic growth in Asia. Population and Development Review, 26, 257–290.

Crouzille, M.C., Nys, E., & Sauviat, A. (2012). Contribution of rural banks to regional economic development: Evidence from the Philippines. Regional Studies, 46(6), 775–791.

Demirguc-Kunt, A. & Maksimovic, V. (2002). Funding growth in bank-based and market-based financial system: Evidence from firm-level data. Journal of Financial Economics, 65(3), 337-363.

Fisman, R. & Love, I. (2002). Pattern of industrial development revisited: The role of finance. Policy Research Working Paper No.2877. Washington D.C.: World Bank.

Golley, J., & Wei, Z. (2015). Population dynamics and ecoonomic growth in China. China Economic Review, 35, 15-32.

Hasan, I., Wachtel, P. & Zhou, M. (2009). Institutional development, financial deepening, and economic growth: Evidence from China. Journal of Banking and Finance, 33(1), 157-170.

King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics, 108(3), 717–737.

Rajan, R. G., & Zingales, L. (1998). Financial dependence and growth. American Economic Review, 88, 559-586.

Rioja F., & Valev, N. (2004a). Finance and the source of growth at various stages of economic development. Economic Inquiry, 42(1), 127–140.

Rioja, F., & Valev, N. (2004b). Does one size fit all? A reexamination of the finance and growth relationship. Journal of Development Economics, 74(2), 429–447.

Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle income countries. World Development, 68, 66–81.

Soedarmono, W., Trinugroho, I., & Sergi, B. S. (2019). Thresholds in the nexus between financial deepening and firm performance: Evidence from Indonesia. Global Finance Journal, 40, 1-12.

Soedarmono, W., Hasan I., & Arsyad, N. (2017). Non-linearity in the finance–growth nexus: Evidence from Indonesia. International Economics, 150, 19–35.

Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65–94.

Swan, T. W. (1956). Economic growth and capital accumulation. Economic Record, 32(2), 334–361.

Trinugroho, I., Agusman, A. & Tarazi, A. (2014). Why have bank interest margins been so high in Indonesia since the 1997/1998 financial crisis? Research in International Business and Finance, 32, 139–58.

Tsani, S., Paroussos, L., Fragiadakis, C., & Charalambidis, I. (2013). Female labor participation and economic growth in the South Mediteranian countries. Economics Letters, 120(2), 323-328.

World Bank (2014). Indonesia: Avoiding the trap. Development Policy Review. World Bank Office Indonesia.



  • There are currently no refbacks.

Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: +62 813-3180-1534

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0