The Nexus between Bank Credit Development and Economic Growth in Indonesia

DLSU Business & Economics Review, Vol. 23, No. 1 (2013), pp. 93-104

12 Pages Posted: 8 Dec 2017 Last revised: 10 Dec 2017

See all articles by Arisyi Raz

Arisyi Raz

Birmingham Business School

Date Written: July 1, 2013

Abstract

The issue about the causal relationship between economic growth and credit market development is very important, particularly in a big emerging economy such as Indonesia, which has implemented various financial reforms following East Asian Financial Crisis in 1997. Efficient credit allocation in the banking sector will distribute the credit to the productive sector and, thus, promote economic growth. Meanwhile, development in the business sector will also increase demand for credit, encouraging credit market development. Given this rationale, this study aims at finding the significance of the linkage between economic growth and credit market development in Indonesia by investigating their long-run causality relationship over the period of 1985-2011. The empirical result presented in this paper suggests that there is a bidirectional relationship between economic growth and credit market development in Indonesia. In addition, it also indicates that lending rate positively affects the development of the credit market in Indonesia.

Keywords: Credit Market, Lending Rate, Economic Growth, Vector Error Correction Model, Financial Economics

JEL Classification: C32, E44, E51

Suggested Citation

Raz, Arisyi, The Nexus between Bank Credit Development and Economic Growth in Indonesia (July 1, 2013). DLSU Business & Economics Review, Vol. 23, No. 1 (2013), pp. 93-104. Available at SSRN: https://ssrn.com/abstract=3084067

Arisyi Raz (Contact Author)

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

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