Bank Credit and Economic Growth: A Dynamic Threshold Panel Model for ASEAN Countries

Updated version of the BETA working paper 2021-24 (2021). International Economics, https://doi.org/10.1016/j.inteco.2022.03.001

26 Pages Posted: 8 Jun 2021 Last revised: 18 Mar 2022

See all articles by Sy Hoa Ho

Sy Hoa Ho

Bank for Investment and Development of Vietnam (BIDV); Vietnam National University (VNU) - VNU University of Economics and Business

Jamel Saadaoui

University of Strasbourg

Date Written: February 11, 2022

Abstract

While it is widely recognized that the development of a sound financial system may contribute to foster economic growth, the relation between economic growth and financial activities is complex. In this perspective, our contribution investigates the existence of threshold effects in the relationship between economic growth and bank credit. Our sample of ASEAN countries is examined over the period spanning from 1993 to 2019. We use the approach of Kremer et al. (2013) to estimate threshold effects in a dynamic panel where a group of explanatory variables can be endogenous. Our results confirm the vanishing effect of finance on economic growth. We found a threshold of 96.5% (significant at the 5% level) for the credit-to-GDP ratio, the threshold variable. In the short run, for observations inferior or equal to the threshold, the positive effect of bank credit expansion on economic growth is around 0.08 (significant at the 1% level). Whereas, for observations superior to the threshold, the positive effect of bank credit expansion on economic growth is around 0.01, but not significant. The role of exporting firms is essential in ASEAN countries, as they are more export-oriented than other regions in the world economy. Our results may indicate that the beneficiary of the credit (firms versus households), the structural features (export-led growth), and the regional heterogeneity have to be considered in empirical investigations of threshold effects in the relation between economic growth and bank credit. This empirical evidence may help to formulate sound policy recommendations.

Keywords: Bank Credit, Economic Growth, Dynamic Threshold Estimation, ASEAN

JEL Classification: C23, G21,O41

Suggested Citation

Ho, Sy Hoa and Saadaoui, Jamel, Bank Credit and Economic Growth: A Dynamic Threshold Panel Model for ASEAN Countries (February 11, 2022). Updated version of the BETA working paper 2021-24 (2021). International Economics, https://doi.org/10.1016/j.inteco.2022.03.001, Available at SSRN: https://ssrn.com/abstract=3861675 or http://dx.doi.org/10.2139/ssrn.3861675

Sy Hoa Ho

Bank for Investment and Development of Vietnam (BIDV) ( email )

BIDV Tower, 35 Hang Voi
Hoan Kiem
Hanoi, 10000
Vietnam

Vietnam National University (VNU) - VNU University of Economics and Business ( email )

E4 Building
144 Xuan Thuy - Cau Giay - Hanoi
Hanoi
Vietnam

Jamel Saadaoui (Contact Author)

University of Strasbourg ( email )

61 Avenue de la Forêt Noire
Strasbourg, Alsace 67000
France

HOME PAGE: http://www.jamelsaadaoui.com/

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