The Relationship Between Bank Credit Expansion and Economic Growth

Abstract

An inclusive financial system favors easy, safe, and affordable access to financial products and services for all economic agents without discrimination, and access to credit is an important component of financial inclusion. The aim of this study is to examine the effect of credit expansion on economic growth in the Community of Portuguese Speaking Countries (CPLP) over the period 2000-2021. The result of the feasible generalized least squares (FGLS) estimation model confirms that bank credit has a negative impact on economic growth. Therefore, these results clearly indicate that the cost of financing (high interest rates) and the weak development of the financial sector are a major constraint on economic growth in these countries. In addition, the result indicates that encouraging consumption and government spending on education can sustain economic growth.