Abstract
Staff Studies is the bi-annual (March and September) peer-reviewed journal of the Central Bank of Sri Lanka. The Journal aims at stimulating innovative research for the analysis of current macroeconomic issues and policy challenges faced by central banks while providing a forum to present recent theoretical and empirical research.
Highlights
The credit-economic growth relationship has been a topic deliberated for over a century, but still stands out to be important to this day
We investigate the causal nexus between economic growth and private credit in Sri Lanka, and the response of output to innovations in private credit, using data from 2003-2015
We find evidence supporting the ‘demand-following’ hypothesis in the case of Sri Lanka, with unidirectional causality running from economic growth to private credit
Summary
The credit-economic growth relationship has been a topic deliberated for over a century, but still stands out to be important to this day. Private credit and economic growth are said to have a close (positive) relationship, the direction of causality is subject to debate. It is widely accepted that the private sector is the engine of growth, especially for developing nations (OECD, 2006). What if it fails to fulfil this purpose? As a developing nation and a small openeconomy with a GDP of around US dollars 82 billion (CBSL, 2016), Sri Lanka has predominantly relied on credit granted by commercial banks to finance investment and economic activity. Private credit to GDP has increased from 28.5 percent in 2003 to 30.8 percent by 2015.1
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
