Credit Markets Development and Economic Growth: Theory and Evidence


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.

Share and Cite:

Sassi, S. (2014) Credit Markets Development and Economic Growth: Theory and Evidence. Theoretical Economics Letters, 4, 767-776. doi: 10.4236/tel.2014.49097.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] Favara, G. (2003) An Empirical Reassessment of the Relationship between Finance and Growth. International Monetary Fund Working Paper Series, 1-46.
[2] Loayza, N.V. and Ranciere, R. (2006) Financial Development, Financial Fragility, and Growth. Journal of Money, Credit and Banking, 38, 1051-1076.
[3] Ben Naceur, S. and Ghazouani S. (2007) Stock Markets, Banks and Growth in Some Mena Region Countries. Research in International Business and Finance, 21, 297-315.
[4] Saci, K., Giorgioni, G. and Holden, K. (2009) Does Financial Development Affect Growth? Applied Economics, 41, 1701-1707.
[5] Braverman, A. and Stiglitz, J. (1982) Sharecropping and the Interlinking of Agrarian Markets. American Economic Review, 72, 695-715.
[6] Bernanke, B.S., Gertler, M. and Gilchrist, S. (1999) The Financial Accelerator in a Quantitative Business Cycle Framework. In: Taylor, J.B. and Woodford, M., Eds., Handbook of Macroeconomics, 1341-1393.
[7] Aghion, P. and Banerjee, A. (2005) Volatility and Growth. Oxford University Press, Oxford.
[8] Schumpeter, J.A. (1911) The Theory of Economic Development. Cambridge.
[9] Jappelli, T. and Pagano, M. (1994) Saving, Growth, and Liquidity Constraints. Quarterly Journal of Economics, 106, 83-109.
[10] Galor, O. and Zeira, J. (1993) Income Distribution and Macroeconomics. Review of Economic Studies, 60, 35-52.
[11] Beck, T., Büyükkarabacak, B., Rioja, F. and Valev, N. (2012) Who Gets the Credit? And Does It Matter? Household vs. Firm Lending across Countries. The B.E. Journal of Macroeconomics, 12, 1-46.
[12] Dos Santos, P. (2011) Production and Consumption Credit in a Continuous-Time Model of the Circuit of Capital. Research on Money and Finance, Discussion Paper No. 28.
[13] Aghion, P., Howitt, P. and Mayer-Foulkes, D. (2005) The Effect of Financial Development on Convergence: Theory and Evidence. Quarterly Journal of Economics, 120, 173-222.
[14] Arellano, M. and Bover, O. (1995) Another Look at the Instrumental Variable Estimation of Error-Components Models. Journal of Econometrics, 68, 29-51.
[15] Blundell, R. and Bond, S. (1998) Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics, 87, 115-143.
[16] Windmeijer, F. (2005) A Finite Sample Correction for the Variance of Linear Efficient Two-Step GMM Estimators. Journal of Econometrics, 126, 25-51.
[17] De Gregorio, J. (1996) Borrowing Constraints, Human Capital Accumulation and Growth. Journal of Monetary Economics, 37, 49-71.
[18] Kneller, R., Bleaney, M. and Gemmell, N. (1999) Fiscal Policy and Growth: Evidence from OECD Countries. Journal of Public Economics, 74, 171-190.
[19] Büyükkarabacak, B. and Krause, S. (2009) Studying the Effects of Household and Firm Credit on the Trade Balance: The Composition of Funds Matters. Economic Inquiry, 47, 653-666.
[20] Büyükkarabacak, B. and Valev, N.T. (2010) The Role of Household and Business Credit in Banking Crises. Journal of Banking and Finance, 34, 1247-1256.

Copyright © 2023 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.