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Bank credit and economic growth: A dynamic threshold panel model for ASEAN countries

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  • Sy-Hoa Ho
  • Jamel Saadaoui

Abstract

While it is widely recognized that the development of a sound financial system may contribute to foster economic growth, the relation between economic growth and financial activities is complex. In this perspective, our contribution investigates the existence of threshold effects in the relationship between economic growth and bank credit. Our sample of ASEAN countries is examined over the period spanning from 1993 to 2019. We use the approach of Kremer et al. (2013) to estimate threshold effects in a dynamic panel where a group of explanatory variables can be endogenous. Our results confirm the vanishing effect of finance on economic growth. We found a threshold of 96.5% (significant at the 5% level) for the credit-to-GDP ratio, the threshold variable. In the short run, for observations inferior or equal to the threshold, the positive effect of bank credit expansion on economic growth is around 0.08 (significant at the 1% level). Whereas, for observations superior to the threshold, the positive effect of bank credit expansion on economic growth is around 0.01, but not significant. The role of exporting firms is essential in ASEAN countries as they are more export-oriented than other regions in the world economy. Our results may indicate that the beneficiary of the credit (firms versus households), the structural features (export-led growth), and the regional heterogeneity have to be considered in empirical investigations of threshold effects in the relation between economic growth and bank credit. This empirical evidence may help to formulate sound policy recommendations.

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  • Sy-Hoa Ho & Jamel Saadaoui, 2022. "Bank credit and economic growth: A dynamic threshold panel model for ASEAN countries," International Economics, CEPII research center, issue 170, pages 115-128.
    • Handle: RePEc:cii:cepiie:2022-q2-170-8
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    More about this item

    Keywords

    Bank credit; Economic growth; Dynamic threshold estimation; ASEAN;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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