The Outcome of Directed Lending in Belarus: Mitigating Recession or Dampening Long-Run Growth?

Dzmitry Kruk and Kiryl Haiduk

No 22, BEROC Working Paper Series from Belarusian Economic Research and Outreach Center (BEROC)

Abstract: This study analyzes the effects of directed lending upon total factor productivity and GDP growth in Belarus over the period of 2000-2012. In theory, directed lending can enhance physical capital accumulation and make the access to credit easier, but empirical studies often show that it leads to unproductive hoarding of capital and financing of lower-yielding projects. This study seeks to explore which of these effects has dominated in the Belarusian economy during a last decade. We find that expansion of directed lending has negatively affected TFP dynamics and thus negatively contributed to the rates of economic growth. However, the detected negative impact of directed lending on total factor productivity was enfeebled by the expansion of market loans. In the future, this link between directed and market loans could cease to exit due to liquidity constraint commercial banks face. If continued, directed lending may cause a more severe negative impact on TFP, and consequently undermine long-run economic growth.

Keywords: Belarus; financial repression; directed lending; economic growth; transition economies; cointegration; vector error-correction model (search for similar items in EconPapers)
JEL-codes: C32 O16 P34 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2013-03
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-tra
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Citations: View citations in EconPapers (4)

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Working Paper: The Outcome of Directed Lending in Belarus: Mitigating Recession or Dampening Long-Run Growth? (2013)
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