Measuring credit structure impact on economic growth in Croatia using (VECM) 1990-2018
Abstract
Studies on the finance-growth link use different proxy variables for financial development. Among the most used is the total credit share in the GDP. Previous empirical studies show to be sensitive to the choice of the finance proxy indicator. Total credit share in the GDP appears biased in empirical modeling. Credit structure (loans to firms and households) prove to be more robust when used in the modeling. Credit structure reveals a different impact on economic growth showing lending policy impact varies depending on the credit structure. Researchers studying the finance-growth link must account for this when investigating supply leading and demand-following theories. Policymakers should also take care of the credit structure since loans to household discourage growth in the long run and are sensitive to economic shocks. We find empirical evidence to support both supply leading and demand- following theory. Bi-directional causality between private loans to firms/households and economic growth exists using Granger causality test. Private loans to firms and households economic growth exists using Granger causality test. Private loans to firms and households have a positive impact on economic growth in Croatia.
Keyword : growth, credit, Croatia, VECM, transition, credit structure, credit cycles, financial development
How to Cite
Škare, M., Sinković, D., & Porada-Rochoń, M. (2019). Measuring credit structure impact on economic growth in Croatia using (VECM) 1990-2018. Journal of Business Economics and Management, 20(2), 294-310. https://doi.org/10.3846/jbem.2019.8344
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Arestis, P., & Demetriades, P. (1999). Finance and growth: institutional considerations, financial policies and causality. Zagreb International Review of Economics & Business, 2(1), 37-62.
Arestis, P., Demetriades, P. O., & Luintel, K. B. (2001). Financial development and economic growth: the role of stock markets. Journal of Money, Credit and Banking, 33(1), 16-41. https://doi.org/10.2307/2673870
Asteriou, D., & Spanos, K. (2018). The relationship between financial development and economic growth during the recent crisis: evidence from the EU. Finance Research Letters (in press). https://doi.org/10.1016/j.frl.2018.05.011
Bahadir, B., & Valev, N. (2017). Catching up or drifting apart: Convergence of household and business credit in Europe. International Review of Economics & Finance, 47, 101-114. https://doi.org/10.1016/j.iref.2016.10.006
Beck, T., & Levine, R. (2004). Stock markets, banks, and growth: Panel evidence. Journal of Banking & Finance, 28(3), 423-442. https://doi.org/10.1016/S0378-4266(02)00408-9
Beck, T., Demirguc-Kunt, A., & Levine, R. (2000). A new database on the structure and development of the financial sector. The World Bank Economic Review, 14(3), 597-605. https://doi.org/10.1093/wber/14.3.597
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2010). Financial institutions and markets across countries and over time: the updated financial development and structure database. The World Bank Economic Review, 24(1), 77-92. https://doi.org/10.1093/wber/lhp016
Benczúr, P., Karagiannis, S., & Kvedaras, V. (2017). Finance and economic growth: financing structure and non-linear impact (JRC Working Papers in Economics and Finance). Luxembourg: Publications Office of the European Union.
Benczúr, P., Karagiannis, S., & Kvedaras, V. (2018). Finance and economic growth: financing structure and non-linear impact. Journal of Macroeconomics (in press). https://doi.org/10.1016/j.jmacro.2018.08.001
Bojanic, A. N. (2012). The impact of financial development and trade on the economic growth of Bolivia. Journal of Applied Economics, 15(1), 51-70. https://doi.org/10.1016/S1514-0326(12)60003-8
Calderon, C., & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72(1), 321-334. https://doi.org/10.1016/S0304-3878(03)00079-8
Caporale, G. M., Rault, C., Sova, R., & Sova, A. (2009). Financial development and economic growth: evidence from ten new EU members (DIW Berlin Discussion Papers No. 940). https://doi.org/10.2139/ssrn.1499786
CEE Banking Sector Report. (2017). Retrieved from https://www.rbinternational.com/eBusiness/01_template1/829189266947841370-829189148030934104-1334500338675784871-NA-2-EN.html
Chimobi, O. M. (2010). The causal relationship among financial development, trade openness and economic growth in Nigeria. International Journal of Economics and Finance, 2(2), 137-147. https://doi.org/10.5539/ijef.v2n2p137
Christopoulos, D. K., & Tsionas, E. G. (2004). Financial Development and economic growth: evidence from panel unit root and cointegration tests. Journal of Development Economics, 73(1), 55-74. https://doi.org/10.1016/j.jdeveco.2003.03.002
Cihák, M., Demirgüç-Kunt, A., Feyen, E., & Levine, R. (2012). Benchmarking financial systems around the world. The World Bank. https://doi.org/10.1596/1813-9450-6175
Darrat, A. F. (1999). Are financial deepening and economic growth causally related? Another look at the evidence. International Economic Journal, 13(3), 19-35. https://doi.org/10.1080/10168739900000002
Demetriades, P. O., & Hussein, K. A. (1996). Does financial development cause economic growth? Time-series evidence from 16 countries. Journal of Development Economics, 51(2), 387-411. https://doi.org/10.1016/S0304-3878(96)00421-X
Demirguc‐Kunt, A., Detragiache, E., & Merrouche, O. (2013). Bank capital: lessons from the financial crisis. Journal of Money, Credit and Banking, 45, 1147-1164. https://doi.org/10.1111/jmcb.12047
Dritsakis, N., & Adamopoulos, A. (2004). Financial development and economic growth in Greece: An empirical investigation with Granger causality analysis. International Economic Journal, 18(4), 547-559. https://doi.org/10.1080/1016873042000299981
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 427-431. https://doi.org/10.2307/2286348
Durusu-Ciftci, D., Serdar Ispir, M., & Yetkiner, H. (2017). Financial development and economic growth: some theory and more evidence. Journal of Policy Modeling, 39(2), 290-306. https://doi.org/10.1016/j.jpolmod.2016.08.001
Egbetunde, T., & Akinlo, A. E. (2015). Financial globalization and economic growth in Sub-Saharan Africa: Evidence from panel cointegration tests. African Development Review, 27(3), 187-198. https://doi.org/10.1111/1467-8268.12140
Eita, J. H., & Jordaan, A. C. (2010). A causality analysis between financial development and economic growth for Botswana. The African Finance Journal, 12(1), 72-89.
Enisan, A. A., & Olufisayo, A. O. (2009). Stock market development and economic growth: evidence from seven Sub-Sahara African countries. Journal of Economics and Business, 61(2), 162-171. https://doi.org/10.1016/j.jeconbus.2008.05.001
Esso, L. J. (2010). Cointegrating and causal relationship between financial development and economic growth in ECOWAS countries. Journal of Economics and International Finance, 2(4), 36-48.
Fan, J.-J., Xu, R., Su, C. W., & Shi, Q.-H. (2017). Demand-following or supply-leading? Trade openness and financial development in China. The Journal of International Trade & Economic Development, 27(3), 314-332. https://doi.org/10.1080/09638199.2017.1390779
Feenstra, R. C., Inklaar, R., & Timmer, M. P. (2015). The next generation of the Penn World Table. American Economic Review, 105(10), 3150-3182. https://doi.org/10.1257/aer.20130954
Goldsmith, R. (1969). Financial structure and development. New Haven: Yale University Press.
Gómez-Puig, M., & Sosvilla-Rivero, S. (2018). Nonfinancial debt and economic growth in euro-area countries. Journal of International Financial Markets Institutions and Money, 56, 17-37. https://doi.org/10.1016/j.intfin.2018.03.005
Granger, C. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438. https://doi.org/10.2307/1912791
Gygli, S., Haelg, F., & Sturm, J.-E. (2018). The KOF Globalisation Index – revisited (KOF Working Paper No. 439). Retrieved from https://www.ethz.ch/content/dam/ethz/special-interest/dual/kof-dam/documents/Globalization/2018/KOF_Globalisation%20Index_Revisited.pdf
Habibullah, M. S. (1999). Financial development and economic growth in Asian countries: testing the financial-led growth hypothesis. Savings and Development, 23(3), 279-291.
Habibullah, M. S., & Eng, Y-K. (2006). Does financial development cause economic growth? A panel data dynamic analysis for the Asian developing countries. Journal of the Asia Pacific Economy, 11(4), 377-393. https://doi.org/10.1080/13547860600923585
Hassan, M. K., Sanchez, B., & Yu, J-S. (2011). Financial development and economic growth: new evidence from panel data. The Quarterly Review of Economics and Finance, 51(1), 88-104. https://doi.org/10.1016/j.qref.2010.09.001
Hsueh, S-J., Hu, Y-H., & Tu, C-H. (2013). Economic growth and financial development in Asian countries: a bootstrap panel Granger causality analysis. Economic Modelling, 32, 294-301. https://doi.org/10.1016/j.econmod.2013.02.027
Ibrahim, M., & Alagidede, P. (2018). Effect of financial development on economic growth in sub-Saharan Africa. Journal of Policy Modeling, 40(6), 1104-1125. https://doi.org/10.1016/j.jpolmod.2018.08.001
Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59(6), 1551-1580. https://doi.org/10.2307/2938278
Johansen, S. (1995). Likelihood-based inference in cointegrated vector autoregressive models. Oxford University Press. https://doi.org/10.1093/0198774508.001.0001
Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Kilimani, N. (2009, March). The link between financial development and economic growth in Uganda: a causality test. Paper presented at the Centre for Study of African Economies (CSAE) Conference (pp. 22-24).
King, R. G., & Levine, R. (1993a). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717-737. https://doi.org/10.2307/2118406
King, R. G., & Levine, R. (1993b). Finance, entrepreneurship and growth. Journal of Monetary Economics, 32(3), 513-542. https://doi.org/10.1016/0304-3932(93)90028-E
Kuznets, S. (1955). Economic growth and income inequality. American Economic Review, 45, 1-28.
Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54(1-3), 159-178. https://doi.org/10.1016/0304-4076(92)90104-Y
Lee, J. (2005). Financial intermediation and economic growth evidence from Canada. Eastern Economics Association, New York.
Lee, C.-C., Chen, M.-P., & Ning, S.-L. (2017). Why did some firms perform better in the global financial crisis? Economic Research-Ekonomska Istraživanja, 30(1), 1339-1366. https://doi.org/10.1080/1331677X.2017.1355258
Léon, F. (2018). Convergence of credit structure around the world. Economic Modelling, 68, 306-317. https://doi.org/10.1016/j.econmod.2017.07.021
Levine, R. (2005). Finance and growth: theory and evidence. Handbook of Economic Growth, 1, 865-934. https://doi.org/10.1016/S1574-0684(05)01012-9
Levine, R., & Zervos, S. (1998). Stock markets, banks, and economic growth. The American Economic Review, 88(3), 537-558.
Ljung, G. M., & Box G. E. P. (1978). On a measure of lack of fit in time series models. Biometrika, 65, 297-303. https://doi.org/10.1093/biomet/65.2.297
McKinnon, R. I. (1973). Money and capital in economic development. Washington, DC, The Brookings Institution.
Patrick, H. T. (1966). Financial development and economic growth in underdeveloped countries. Economic Development and Cultural Change, 14, 174-189. https://doi.org/10.1086/450153
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75, 335-346. https://doi.org/10.1093/biomet/75.2.335
Rachdi, H., & Mbarek, H. B. (2011). The causality between financial development and economic growth: panel data cointegration and GMM system approaches. International Journal of Economics and Finance, 3(1), 143-151. https://doi.org/10.5539/ijef.v3n1p143
Ray, S. (2013). Does financial development promote economic growth in India? International Journal of Economic Practices and Theories, 3(3), 140-151.
Savina, G., Haelg, F., & Sturm, J. E. (2018). The KOF globalisation index – revisited (KOF Working Paper No. 439). Retrieved from https://www.ethz.ch/content/dam/ethz/special-interest/dual/kof-dam/documents/Globalization/2018/KOF_Globalisation%20Index_Revisited.pdf
Schumpeter, J. A. (1934). The theory of economic development. Cambridge, MA: Harvard University Press.
Schwarz, G. (1978). Estimating the dimension of a model. The Annals of Statistics, 6(2), 461-464. https://doi.org/10.1214/aos/1176344136
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