Abstract
The purpose of this paper is to study jointly the effects of consumer credit market and investment credit market on economic growth. We introduce consumer credit market in Schumpeterian framework. Under credit market imperfections, our model predicts a negative effect of the development of consumer credit market and a positive effect of the development of investment credit market on economic growth. We next confront the model on a panel of 27 European’s countries over the period 1995-2012. Using GMM dynamic panel data estimation, empirical results confirm our theoretical predictions. Credit composition may give explanation of the ambiguous credit-growth nexus and its heterogeneity across country.
Highlights
Major theoretical literature on financial development and economic growth supports the argument that credit market development has a positive effect on economic growth by enhancing capital accumulation and technological changes
We introduced consumer credit market in the theoretical framework of Aghion, Howitt and Mayer Foulkes (2005) [13]; and we considered credit market imperfections in both, consumer and investment credit markets
This paper attempts to distinguish the specific effect of consumer and investment credit markets on economic growth
Summary
Major theoretical literature on financial development and economic growth supports the argument that credit market development has a positive effect on economic growth by enhancing capital accumulation and technological changes. Recent empirical studies don’t support the finance-led growth hypothesis. This finding is considered as a puzzle for theories underpinning for the importance of credit market development for growth. This conflicting finding is proved by a number of recent papers. Using GMM dynamic panel data estimation and Pooled Mean Group estimator, with two indicators of financial development, Favara (2003) [1] found no evidence on the impact of financial development on growth pat-
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