Determination of Monetary Transmission through the Types of Credit on Economic Growth

Mangasa Augustinus Sipahutar


Banks credit by usage (working capital, investment and consumer credit) and by economic sectors (agricultural, mining, industrial, trade and services) on Indonesian economic growth explainedthe role of banks credit as a monetary transmission channel. Banks credit for investment, agricultural, industrial, trade and services, have a significant effect on economic growth. Thus, as a growth accelerating factor, investment credit aimed to financing agricultural, industrial, trade and services areable to promote qualified growth of Indonesian economy as well as reducing unemployment rate. This study uses bankscredit data by usage, economic sectors, economic growth and unemployment rate in the period of 1991-2014. Model estimation on the relationship between banks credit by usage on economic growth and unemployment using ECM (Error Correction Mechanism) model, while the relationship between banks credit by economic sectors oneconomic growth using in–difference regressionon OLS (Ordinary Least Square) model.Credit depth as the ratio between banks credit and economic growth is only appropriate for the analysis of banks credit relationship usage on economic growth, while by economic sectors, their role depend on the magnitude of credit portfolio to total banks credit.

Keywords: credit by economic sectors; credit by usage; economic growth

JEL Codes: E6, O2, O4

Full Text:



Aghion, P., & Howitt, P. (2009). The Economics of Growth. United States: MIT Press.

Aghion, P., Angeletos, G.M., Banerjee, A., & Manova, K. (2010). Volatility and Growth: Credit Constraints and the Composition of Investment. Journal of Monetary Economics, 57, 246-265.

Ayadi, R., Arbak, E., Ben-Naceur, S., & De-Groen, W.P. (2013). Financial Development, Bank Efficiency and Economic Growth Across the Mediterranean. Medpro Technical Report, 30, March.

Barro, R.J., & Sala-i-Martin, X. (2004). Economic Growth (second edition). United States: MIT Press.

Bassetto, M., Cagetti, M., & De Nardi, M. (2015). Credit Crunches and Credit Allocation in a Model of Entrepreneurship. Review of Economic Dynamics, 18, 53-76.

Benhabib, J., & Spiegel, M.M. (2000). The Role of Financial Development in Growth and Investment. Journal of Economic Growth, 5, 341-360.

Beck, T., Demirguc-Kunt, A., Laeven, L., & Levine, R. (2008). Finance, Firm Size and Growth. Journal of Money, Credit and Banking, 40(7), 1279-1405.

Beck, T., & Levine, R. (2004). Stock Market, Banks and Growth: Panel Evidence. Journal of Banking and Finance, 28, 423-442.

Beck, T., Levine, R., & Loayza, N. (2000). Finance and the Source of Growth. Journal of Financial Economics, 58, 261-300.

Blanchard, O., & Johnson, D.R. (2013). Macroeconomics (sixth edition). United States: Pearson.

Chodorow-Reich, G. (2014). The Employment Effects of Credit Market Disruption: Firm-Level Evidence from the 2008-9 Financial Crises. The Quarterly Journal of Economics, 129(1), 1-60.

Christopoulos, D. K., & Tsionas, E.G. (2004). Financial Development and EEconomic Growth: Evidence from Panel Unit Root and Cointegration Tests. Journal of Development Economics, 73, 55-74.

Demetriades, P.O., & Hussein, K.A. (1996). Does Financial Development Cause Economic Growth? Time Series Evidence from 16 Countries. Journal of Development Economics, 5, 387-411.

Dornbusch, R., Fischer, S., & Startz, R. (2008). Macroeconomics (tenth edition). Singapore: McGraw-Hill.

Fohlin, C. (1998). Banking Systems and Economic Growth: Lessons from Britain and Germany in the Pre-world War-I Era. Federal Reserve Bank of St. Louis, May/June, 37-47.

Gilchrist, S., & Zakrajsek, E. (2012). Credit Spread and Business Cycle Fluctuations. American Economic Review, 102(4), 1692-1720.

Ghosh, J. (2013). Microfinance and the Challenge of Financial Inclusion for Development. Cambridge Journal of Economics, 37, 1203-1219.

Greenwald, B., & Stiglitz, J.E. (2003). Towards a New Paradigm in Monetary Economics. Cambridge, Great Britain: Cambridge Univiversity Press.

Hassan, M.K., Sanchez, B., & Yu, J.S. (2011). Financial Development and Economic Growth: New Evidence from Panel Data. Quarterly Review of Economics and Finance, 51, 88-104.

Heffernan, S. (2005). Modern Banking. West Sussex, Great Britain : John Wiley & Sons.

King, R.G., & Levine, R. (1993a). Finance, Entrepreneurship and Growth - Theory and Evidence. Journal of Monetary Economics, 32, 513-542.

King, R.G., & Levine, R. (1993b). Finance and Growth: Schumpeter Might be Right. The Quarterly Journal of Economics, 108(3), 717-737.

Levine, R. (2003). More on Finance and Growth: More Finance, More Growth? Federal Reserve Bank of St. Louis, July/August.

Levine, R. (2001). International Financial Liberalization and Economic Growth. Review of International Economics, 9(4), 688-702.

Levine, R., Loayza, N., & Beck, T. (2000). Financial Intermediation and Growth: Causality and Causes. Journal of Monetary Economics, 46, 31-77.

Levine, R., & Zervos, S. (1998). Stock Market, Banks and Economic Growth. The American Economic Review, 88(3), 537-558.

Mankiw, N.G. (2016). Macroeconomics (ninth edition). United States: Worth.

Mishkin, F.S., & Eakins, S.G. (2012). Financial Markets and Institutions (seventh edition). United States: Prentice Hall.

OECD. (2003). The Sources of Economic Growth in OECD Countries. France: OECD.

Pagano, M. (1993). Financial Markets and Growth - An Overview. European Economic Review, 37, 613-622.

Porter, M.E. (1998). On Competition. United States: Harvard Business Review.

Rioja, F., & Valev, N. (2014). Stock Markets, Banks and the Sources of Economic Growth in Low and High Income Countries. Journal of Economics and Finance, 38(2), 302-320.

Rioja, F., & Valev, N. (2004a). Finance and the Sources of Growth at Various Stages of Economic Development. Economic Inquiry, 42(1), 127-140.

Rioja, F., & Valev, N. (2004b). Does One Size Fit All? A Reexamination of the Finance and Growth Relationship. Journal of Development Economics, 74, 429-447.

Shan, J.Z., Morris, A.G., & Sun, F. (2001). Financial Development and Economic Growth: An Egg–chicken Problem? Review of International Economics, 9, 443-454.

Sipahutar, M.A. (2016). Keterkaitan Kredit dan Kelembagaan Perbankan Indonesia pada Perekonomian Nasional dan Regional [Linkage of Indonesian Banks Credit and Institutional on National and Regional Economy]. (Unpublished Dissertation). Sekolah Pascasarjana Institut Pertanian Bogor, Indonesia.

Sipahutar, M.A., Oktaviani, R., Siregar, H., & Juanda, B. (2016). Effect of Credit on Economic Growth, Unemployment and Poverty. Jurnal Ekonomi Pembangunan, 17(1), 37-49.

Townsend, R.M., & Ueda, K. (2006). Financial Deepening, Inequality and Growth: A Model-based Quantitative Evaluation. Review of Economic Studies, 73, 251-293.


  • There are currently no refbacks.

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.