Stimulating economic growth in Palestine through conventional and FinTech banking: A time-series and stylized simulation approach

This study examines the causal relationship between banking intermediation and economic growth in Palestine, spanning the period from the first quarter of 2013 to the first quarter of 2024. The analysis uses time series techniques to incorporate stylized simulation methods, including unit root tests, co-integration, Granger causality testing, and the ARDL model. The results indicate that banking intermediation accounts for approximately 93 % of the variation in GDP. While Granger causality tests did not reveal direct causal connections, the ARDL model demonstrates a significant long-term positive relationship between GDP and bank lending, in contrast to a negative correlation with savings and checking accounts. This finding implies that lending activities are conducive to economic growth, whereas the mobilization of deposits is not effectively reinvested. The study advocates enhanced lending to productive sectors and SMEs, and improved mechanisms to allocate savings efficiently. Furthermore, to complement the empirical analysis, the research proposes a FinTech-augmented Cobb-Douglas theoretical framework that simulates the macroeconomic impact of digital financial intermediation in environments constrained by data availability. The stylized simulations suggest that even modest advancements in FinTech adoption could significantly enhance total factor productivity and stimulate economic output growth, thereby underscoring the strategic importance of digital financial innovation for Palestine's future economic development.