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Credit Creation, Economic Progress and the Saturation Effect: A Sector Level Analysis

Author

Listed:
  • Nader AlKathiri

    (Department of Economics, University of Sussex, Falmer, United Kingdom)

  • Sambit Bhattacharyya

    (Department of Economics, University of Sussex, Falmer, United Kingdom)

Abstract

We investigate the effect of credit creation on real value added in manufacturing, services and agriculture and whether the effect is conditional on the level of development (saturation effect). We also investigate potential heterogeneity across credit types (households and non-financial corporations) and the significance of credit impulse (or new credit creation). Using a sample of up to 95 countries covering the period 1970 to 2017, we find that private credit has strong positive effects on manufacturing value added but not on agriculture and services. We also find evidence of credit saturation across all three sectors even though the effect is noticeably weaker in agriculture. The unbundled effects of household and non-financial corporation credit on value added in manufacturing and services are statistically significant. We also do not find any effect of credit impulse.

Suggested Citation

  • Nader AlKathiri & Sambit Bhattacharyya, 2021. "Credit Creation, Economic Progress and the Saturation Effect: A Sector Level Analysis," Working Paper Series 1121, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:1121
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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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