The relationship between banks' credit activity and economic growth: An empirical research for the Republic of Serbia

• Main Authors: Grbić Milka, Luković Stevan
• Format: Article
• Language: English
• Published: Economics institute, Belgrade 2020-01-01
• Series: Industrija
• Subjects: banks' credit activity; economic growth; var model; causality according to granger; republic of serbia
• Online Access: https://scindeks-clanci.ceon.rs/data/pdf/0350-0373/2020/0350-03732002037G.pdf
• ISSN: 0350-0373; 2334-8526

The subject matter of the research study conducted in this paper is the interactive relationship between banks' credit activity and economic growth. In connection with that, the paper is aimed at examining the existence and direction of the cause and effect relationship between the credit activity of the banking sector and the overall economic activity in the Republic of Serbia. The quarterly data related to the period from 2003 to 2019 were collected for the purposes of the research. The share of the loans granted to enterprises in the GDP and the share of the loans granted to households in the GDP are used as the indicators of the credit activity in the study, whereas the real GDP growth rate is determined as the indicator of economic growth. Given the fact that the observed time series are of the different order of integration, the analysis is conducted within the VAR model by applying the Toda-Yamamoto procedure of the Granger causality test. The results of the research show a significant unidirectional causal relationship according to Granger, which starts from the direction of banks' credit activity towards economic growth. The results of the conducted research study can be useful to the makers of the economic policy and the creators of a strategy for the development of the national economy.