Bank credit and economic activity in a developing economy

Abstract

The importance of bank credit to financing economic activity and development has been the subject of empirical analysis for decades. This paper contributes to the debate by evaluating the effect of bank credit on economic activity using a developing economy data. The study period ranged from January 2007 to December 2017. Estimates from descriptive statistics show that the economic activity and bank credit series are negatively skewed and peaked, with non-normal distribution. The results generated for the Augmented Dickey unit root test showed that at the level form, all the variables are non-stationary but after first differencing the variables became stationary and integrated of order one (i.e. I(1)). The results obtained from the multiple regression model show that bank credit has a positive and significant effect on the economic activity. We, therefore, conclude that bank credit has a predictive influence on economic activity. One of the implications of this conclusion is that banking system regulators should formulate policies that enhance access to credit to the private sector while containing inflation.