A new paper coauthored by fellow PSD blogger Thorsten Beck entitled Who Gets the Credit? offers up some new insights on what effect credit availability has on GDP growth. Using data on 45 countries between 1994 and 2005 on the relative share of enterprise vs. household credit, the authors conclude:
We find that it is bank lending to enterprises, not to households, that drives the positive impact of financial development on economic growth.
I find this a startling conclusion; most of the literature on human capital suggests that credit constraints play an important role in dampening growth. Student loans - one of the products that the IFC has been involved in - should help overcome this credit constraint and give a boost to growth in the long run. Even in the absence of formal student loans, other forms of household credit can help keep students in primary and secondary education longer, thereby improving human capital outcomes.
One question I have concerning the study, then, is whether the effects of household credit on growth could take longer to appear than that of enterprise credit. Studying takes years; whereas, new equipment can be put to use immediately. Beck et al. do note that the issue of time horizon still needs to be addressed: "More research is needed. First, expanding the existing data towards panel data sets with a longer-time series dimension will allow more rigorous testing of both determinants and effects of credit composition." I look forward to their next contribution to this topic.
Join the Conversation