Relationship between credit availability and economic growth: A case study of Brazil

Abstract

This study examines the impact of credit availability on Brazil’s economic growth. The analysis covers the period from 1951 to 2014 for total bank credit, while sector-specific credit data spans from 1973 to 2014. Annual GDP data, both overall and sectoral, is measured using GDP at factor cost or GVA at basic prices, based on 2004-05 prices. Various credit and output indicators are employed to assess the relationship at both aggregate and sectoral levels. The stationarity of credit growth and GDP growth variables is tested using the ADF test, PP test, and KPSS test. To determine long-term relationships, the Johansen test is applied, while short-term relationships are analyzed using the Granger causality test. GDP data indicates a notable improvement in the average growth rate during the 1990s. Results from the co-integration test suggest a long-term link between overall economic growth and total credit from 1952 to 1992, but this relationship does not persist beyond 1992. Additionally, our findings indicate a long-term co-integration relationship between manufacturing credit and manufacturing GDP. However, no such relationship is observed between industrial credit and industrial GDP, implying a lack of co-integration. Overall, the findings highlight a correlation between credit growth and GDP growth.

Keywords: Bank Credit, Granger Causality, Johansen Test, Credit and Economic Growth.