International Research Journal of Finance and Economics ISSN 1450-2887 Issue 109 May, 2013 http://www.internationalresearchjournaloffinanceandeconomics.com Does Net Interest Margin Affect Economic Growth?: A Panel Data Approach Mehmet Zeki AK Economics Department, Sakarya University Esentepe Campus, Sakarya, Turkey E-mail: mak@sakarya.edu.tr Nurullah Altinta Economics Department, Sakarya University Esentepe Campus, Sakarya, Turkey E-mail: naltintas@sakarya.edu.tr Ahmet Gökçe Akpolat Economics Department, Sakarya University Esentepe Campus, Sakarya, Turkey E-mail: aakpolat@sakarya.edu.tr Abstract This study examines the relationship between financial development and economic growth for 14 developing countries during the period 1990-2009 within a panel data analysis. This study uses five different measures of financial development. The result shows that the banking systems in the developing countries need to be regulated since the unproductive credits issued by banks. Moreover, savings in the developing countries must be integrated into the financial system through capital market channel rather than banking channel. Finally, net interest margin is detected to be a determinant factor of economic growth. The competition among the financial institutions provides a decrease in the net interest margin, which contributes to economic growth. Keywords: Financial development; Economic growth; Net interest margin; Panel data analysis 1. Introduction The existence and the development of financial system and their relationship with economic growth have been considered as an important issue in the theoretical and empirical literature. Schumpeter (1934) is one of the pioneer economists who emphasis on the influence of financial system on economic growth. He propounded that financial institutions facilitated the technological innovations and contributed to economic growth by leading to channel the financial resources into productive investments with the help of gathering savings. Another pioneer view was Robinson’s (1952) approach which stated a demand for financial transactions would be created as a consequence of economic growth. Lucas (1988) stated that the economists redundantly put emphasis on whether financial systems had an important effect on