Credit Composition and Economic Growth: Households versus Enterprises

Although numerous studies have been carried out on economic growth and credit expansion, very few studies have examined direct causality between growth and credit market composition. Furthermore, with a few exceptions, most previous studies have tested how credit market development affects macroeconomic variables by using aggregate data. The purpose of this paper is to examine empirically the causal nexus between enterprise credit, household credit, and economic growth by using a sample of six OECD countries. The bootstrap panel Granger causality approach is utilized to detect the direction of causality. The results show that there is a unidirectional causality running from credit to economic growth in the case of the household sector and unidirectional causality running from economic growth to credit in the case of the enterprise sector in the most countries under review. The policy implication of the findings is that credits offered to households contribute to a greater extent to economic growth than credits offered to enterprises.