 |
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: C23, G21, O41
