The Determinants of Credit Activity and the Impact of their Evolution on Economic Growth. Case Study: Albania
The Determinants of Credit Activity and the Impact of their Evolution on Economic Growth. Case Study: Albania

Summary/Abstract: The dominant component of the Albanian financial system is the banking sector, whose activity is transparent and leads to an efficient market economy. Credits make up the majority of the banking system's assets, which is why it is so important to determine if there is a link between the evolution of credit activity and economic growth in the current economic context. This paper aims to estimate through an empirical analysis the long-term and short-term effects of the impact of the credit activity and some bank-specific factors on economic growth in Albania, by employing a Vector Error Correction Model (VECM), using quarterly data from 1998q4 to 2021q4. For estimation purposes, economic growth is measured as the quarterly rate of GDP growth. In the econometric model the focus will be on the independent variable bank credit to the private sector as percent of GDP. This indicator is a very important one and widely used in the literature as a determinant of credit activity. The other independent variables considered are: treasury bills as percent of GDP; deposits as percent of GDP; ROE and the Herfindahl index. In general, there was a negative cointegration between GDP and bank credit to the private sector. In the long run, the results of the econometric model showed that there is a statistically significant direct relationship between the dependent variable of economic growth and the factors of treasury bills, deposits and the Herfindahl index. On the other hand, the results of the econometric model showed that there is an indirect correlation between economic growth and ROE.

• Details
• Contents