There is both long-run and short-run equilibrium relationship between total long-term bank credit and overall economic growth, finds the study.
Author
R. Balasubramanian, Jindal Global Business School, O.P. Jindal Global University, Sonipat, Haryana, India.
Summary
The impact of overall bank credit on the economic growth is extensively studied by way of cross-country analysis. This article is a country-specific study on the role of long-term bank credit, rather than total bank credit, on the economic growth of India, using autoregressive distributed lag (ARDL) model with control variables.
Further, this article examines sector-specific impact of long-term industrial credit on the industrial output. The results support the existence of long-run relationship between industrial long-term credit and industrial output in India.
Furthermore, there is both long-run and short-run equilibrium relationship between total long-term bank credit and overall economic growth as evident from the statistically significant positive coefficient of long-term bank credit.
In addition, Granger causality test shows that long-term bank credit Granger causes gross domestic product (GDP) growth. The outcome of this study highlights the importance of long-term bank credit for the economic growth of India.
It also suggests that the government and the Central Bank of India should evaluate suitable policies for encouraging long-term credit.
Published in: Global Business Review
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