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SMEs' CREDIT DEMAND AND ECONOMIC GROWTH IN INDONESIA

M. Shabri Abd. Majid (), Hamdani (), Muhammad Nasir () and Faisal ()
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Hamdani: Financial Consultant for the SMEs and Bank's Partner, Aceh Province, Indonesia, Graduate Student in Economics, Faculty of Economics and Business, Syiah Kuala Kuala University, Indonesia
Muhammad Nasir: Senior Lecturer, Faculty of Economics and Business, Syiah Kuala Kuala University, Indonesia
Faisal: Senior Lecturer, Faculty of Economics and Business, Syiah Kuala Kuala University, Indonesia

Regional Science Inquiry, 2018, vol. X, issue 2, 121-133

Abstract: This study aims at empirically exploring the short- and long-run relationships between economic growth, non-performing loans, interest rates and the credit demand by the small and medium enterprises (SMEs) in Aceh province, Indonesia. The quarterly data for the period 1995 to 2015 were analyzed by the cointegration and vector error correction model (VECM). The study documented that there was a cointegration among the economic growth, non-performing loans, interest rates and the credit demand, implying the existence of long-run equilibrium among the variables. In addition, in short-run, the study found a unidirectional causality from economic growth to credit demand, a bidirectional causality between interest rates and credit demand, while no causality existed between non-performance loan and credit demand by the SMEs in Aceh, Indonesia. Thus, to enhance the SMEs, the government should focus on promoting the economic growth by managing the stability of interest rates in the province.

Keywords: Credit demand; Economic growth; Non-performing loan; SMEs. (search for similar items in EconPapers)
JEL-codes: C22 E59 O49 H81 (search for similar items in EconPapers)
Date: 2018
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