XXV Edition

1-2 December 2016"

Explaining the Vanishing Effect in Finance-Growth Nexus: Does Credit Structure Matter?

Leon Florian, University of Luxembourg

This paper attempts to distinguish the e ffects of household and enterprise credit on economic growth. To doing so, a new hand-collected database covering 143 countries over the period 1995-2014 is used. Estimation results confi rm recent evidence documenting the absence of e ffect of total credit to growth (vanishing eff ect). In a second step, total credit is divided between household credit and business credit to assess whether the structure of credit matters. Findings show that household credit has a detrimental e ffect on growth, but fail to provide support for a positive impact of business credit. In other words, the mystery of vanishing eff ect remain, at least for business credit.

Area: Banking

Keywords: Financial development, Household credit, Enterprise credit, Economic growth

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