Abstract
Despite the growing literatures that examined the relationship between financial developments and growth of any economy, there is scarceness in the empirical studies that examine the influence of bank credit on economic performance or growth at secrotal level of any country. Therefore this study came to examine the relationship between bank credit and economic growth in Jordan at different sectors for the period that span from 1993 to 2014. We employ two different methodologies Vector Error Correction Model (VECM) and Granger Causality Test, The results report for a long run relationship could be inferred between Real GDP, and its Explanatory variables of Total Bank Credit (TBC); Bank Credit for Agriculture sector (CFA); Bank Credit for Industry sector (CFI); Bank Credit for Construction sector (CFC); Bank Credit for Tourism sector(CFT). So we can suggest that TBC, CFA, CFI, CFC, and CFT are in the long term relationship with the development of Jordanian economy.Granger causality test conclude for a causal relationship going from economic growth to bank credit at agriculture and construction sectors in Jordan economy. Also the results report bidirectional causality observed among economic development and bank credit to construction sector that is the most important sectors in this economy. Moreover, our results point out that the efficiency of the bank credit facilities in a major economic sectors has an important role in the Jordanian economic growth, and shows the needs to enhance the role of financial sector for different economic sectors by adopting more appropriate macroeconomic policies.
Highlights
The major portion of the financial literature point out that financial institution development should lead to the development of any economy
The data used in this study includes: 1. The Real Gross Domestic Product (RGDP) at current basic price refers to the economic growth as dependent variable
That this study came to study the relation between bank credit for different sectors and economic growth through employing different advanced methodologies Vector Error Correction Model (VECM), and Granger Causality Test, and using quarterly data for the period 1993-2014
Summary
The major portion of the financial literature point out that financial institution development should lead to the development of any economy. The relationship between development of financial sector and the economic growth firstly presented through work of Schumpeter (1911). He confirmed that the services provided by financial institutions could stimulate technological innovation and economic growth by funding productive investments. In the terms of economic development the development of financial sector, especially the bank credit play a vital important role to provide the necessary financial resources to finance various economic activities, and re-directing it to serve the economic sectors in correct way. The prior findings in the financial literature have made it useful to investigate whether bank credits in our country can be depending on to motivate the growth of the Jordan economy or not. The rest of this paper: Section 2 present literature review, Section 3 report the data and methodology used in this study, the empirical analysis results discussed in section 4, and Section 5 report the conclusion of our study
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