Explaining the Vanishing Effect in Finance-Growth Nexus: Does Credit Structure Matter?
This paper attempts to distinguish the effects 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 confirm recent evidence documenting the absence of effect of total credit to growth (vanishing effect). 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 effect on growth, but fail to provide support for a positive impact of business credit. In other words, the mystery of vanishing effect remain, at least for business credit.
Area: Banking
Keywords: Financial development, Household credit, Enterprise credit, Economic growth
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