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The Differentiated Effects of Bank Credit on Economic Activity in an Emerging Market

Author

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  • Rubén Chavarín

    (Universidad de Guadalajara)

Abstract

This study investigates the differentiated effects of bank credit on economic activity in an emerging economy. Unlike the recent literature on credit differentiation, which analyzes household credit versus commercial credit, this paper focuses on credit differentiation in different economic sectors: manufacturing, construction, real estate services, retail trade, and wholesale trade. In analyzing the case of Mexico, the main conclusion is that bank credit generates differentiated effects on economic activity: only direct impacts of credit on manufacturing and retail trade were found, but indirect impacts of credit were found in all analyzed sectors. In addition to gross fixed investment, which is the traditional transmission mechanism for manufacturing firms, we show an additional transmission mechanism for service companies, which is the companies' consumption of goods and services. These results propose that bank credit can benefit the economy through multiple channels.

Suggested Citation

  • Rubén Chavarín, 2023. "The Differentiated Effects of Bank Credit on Economic Activity in an Emerging Market," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 13(1), pages 21-41.
    • Handle: RePEc:afj:journ3:v:13:y:2023:i:1:p:21-41
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-rdfin_v13_n1_a2
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    More about this item

    Keywords

    Bank credit; economic growth; economic sectors; emerging market economies;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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