Credit Expansion in Emerging Markets: Propeller of Growth?

García-Escribano, Mercedes; Han, Fei

doi:10.5089/9781513581927.001

Cited by 25 publications

(17 citation statements)

References 15 publications

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“…All in all, the results of the cause test confirm the validity of the research hypothesis H1. The findings of this empirical research study are consistent with the results of a number of the works in which the role of the financial sector in the economic growth process is emphasized, which generally proves the fact that the credit activity of commercial banks can be the leading indicator of economic growth (Gural & Lomachynska, 2017;Černohorský, 2017;Kabashi & Suleva, 2016;Garcia-Escribano & Han 2015;Ramanauskas, 2005). At this point, it is important to note that the credit activity of banks is the factor that facilitates economic growth, i.e.…”

Section: Source: Own Calculation 2020supporting

confidence: 88%

“…Their main conclusion implied the existence of a positive, statistically significant partial correlation between the number of the indicators of the development of the banking sector and the annual growth rate of the real GDP per capita. Credit growth was found to have had a significant impact on economic growth in a total of 31 emerging market economies (Garcia-Escribano & Han, 2015). The unidirectional causal relationship starting from the private sector's credits towards economic growth in Visegrad countries (Gural & Lomachynska, 2017), Macedonia (Kabashi & Suleva, 2016), Romania (Duican & Pop, 2015), Ireland (Kelly et al, 2013), Kenya (Iqbal et al, 2012) and Lithuania (Ramanauskas, 2005) was also empirically confirmed.…”

Section: Literature Reviewmentioning

confidence: 81%

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The relationship between banks' credit activity and economic growth: An empirical research for the Republic of Serbia

Grbić¹,

Luković²

2020

Industrija

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The subject matter of the research study conducted in this paper is the interactive relationship between banks' credit activity and economic growth. In connection with that, the paper is aimed at examining the existence and direction of the cause and effect relationship between the credit activity of the banking sector and the overall economic activity in the Republic of Serbia. The quarterly data related to the period from 2003 to 2019 were collected for the purposes of the research. The share of the loans granted to enterprises in the GDP and the share of the loans granted to households in the GDP are used as the indicators of the credit activity in the study, whereas the real GDP growth rate is determined as the indicator of economic growth. Given the fact that the observed time series are of the different order of integration, the analysis is conducted within the VAR model by applying the Toda-Yamamoto procedure of the Granger causality test. The results of the research show a significant unidirectional causal relationship according to Granger, which starts from the direction of banks' credit activity towards economic growth. The results of the conducted research study can be useful to the makers of the economic policy and the creators of a strategy for the development of the national economy.

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Section: Source: Own Calculation 2020supporting

confidence: 88%

Section: Literature Reviewmentioning

confidence: 81%

The relationship between banks' credit activity and economic growth: An empirical research for the Republic of Serbia

Grbić¹,

Luković²

2020

Industrija

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“…Recently, several empirical studies find that credit and economic growth are positively correlated, and the direction of causation is from credit growth to economic growth. Garcia‐Escribano and Han (2015), for example, report a positive and significant effect of credit growth (corporate, consumer, and housing credit) on output growth in emerging market economies. They find the response of GDP growth to a 1 percentage point increase in private credit growth ranging from about 0.03 percentage points for corporate credit to about 0.075 percentage points for consumer credit.…”

Section: The Impact Of Interest Rate Controls In Kenyamentioning

confidence: 99%

Do interest rate controls work? Evidence from Kenya

Alper

Clements

Hobdari

et al. 2020

Review Development Economics

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This paper reviews the impact of interest rate controls in Kenya, introduced in September 2016. The intent of the controls was to reduce the cost of borrowing, expand access to credit, and increase the return on savings. However, we find that the law on interest rate controls has had the opposite effect of what was intended. Specifically, it has led to a collapse of credit to micro‐, small‐, and medium‐sized enterprises; shrinking of the loan book of the small banks; and reduced financial intermediation. Because of their adverse effects on bank lending, we estimate that the interest rate controls have reduced economic growth by ¼–¾ percentage points on an annual basis. We also show that interest rate caps reduced the signaling effects of monetary policy. These suggest that (1) the adverse effects could largely be avoided if the ceiling was high enough to facilitate lending to higher‐risk borrowers and (2) alternative policies could be preferable to address concerns about the high cost of credit.

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“…() using a data set of 45 developed and developing economies, for the period 1994–2005, find that NFC debt is positively linked to GDP per capita growth (and reduction in income inequality), whereas there is no significant relationship between household borrowing and GDP growth (or income inequality). In a similar vein, Garcia‐Escribano and Han () focusing on 31 emerging markets for the period 2002–12 find that increases in consumer, mortgage and NFC credit have significant positive effects on real GDP growth, with the strongest impact coming from consumer credit.…”

Section: The Debt and Growth Literaturementioning

confidence: 81%

Unbundled debt and economic growth in developed and developing economies: An empirical analysis

2018

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We unbundle the effect of debt on economic growth using a new panel data set sourced from Vague (2014, The next economic disaster: Why it's coming and how to avoid it. Philadelphia, PA: University of Pennsylvania Press) for 48 countries over the period 1961–2015. We distinguish between public, private, household and nonfinancial corporation (NFC) debt. We use the panel vector autoregressive approach, Granger causality tests and impulse response to establish causality. We also test the heterogeneity in the debt–growth relationship across developed and developing countries. In our full sample of countries, all types of debt appear to be harmful to economic growth. The negative effect of public debt appears to be uniform across developed and developing countries, although the impact is much stronger on developed countries. Household debt appears to be expansionary in developing countries whereas contractionary in developed countries. Nonfinancial corporation debt appears to have no impact on developing countries but negative impact on developed countries. Finally, total debt (i.e., the sum of public, household and NFC debt) has a negative impact on growth in developed countries, but no impact is detected in the case of developing countries.

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Credit Expansion in Emerging Markets: Propeller of Growth?

Cited by 25 publications

References 15 publications

The relationship between banks' credit activity and economic growth: An empirical research for the Republic of Serbia

The relationship between banks' credit activity and economic growth: An empirical research for the Republic of Serbia

Do interest rate controls work? Evidence from Kenya

Unbundled debt and economic growth in developed and developing economies: An empirical analysis

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