Purpose – This study aims to clarify the impact of banking development on industrial sector during 1980 to 2020.
Design/Methodology/approach – For the empirical analysis the study uses data from 1980 to 2020 and employs ARDL model to investigate the short-run and long-run relationship between banking development and industrial sector growth. We use four sets of indicators of banking development to distinguish (size, depth, efficiency and stability) as aspects of banking development.
Findings – The main results of our study are summarized in two findings: First, banking development expressed by BD index has positive and significant impact either in the short or long run on Egyptian industrial sector growth confirmed the supply heading hypothesis through the study period while financial openness has a negative and insignificant impact on industrial growth and banking performance. Second, results showed a positive and significant impact of capital stock and openness while they clarified that credit to government does not crowd out credit to industrial sector through the period.
Originality/value –  our study has selected industrial sector only as representative of real economy to estimate the impact of banking sector, also this paper is the first study examines the crowding out effect in Egyptian credit market on industrial sector growth. According to our finding, the main recommendation summarized in the need to develop banking performance either through proactive role of banking system to reduce operating costs for achieving banking efficiency or directing more credit towards industrial sector to enhance growth.