Effect of abnormal credit expansion and contraction on GDP per capita in ECOWAS countries

Peterson Ozili, Olajide Oladipo and Paul Iorember

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate the impact of abnormal credit expansion and contraction on the GDP per capita of ECOWAS countries. We analyse abnormal credit from two dimensions: first, the impact of abnormal credit contraction on GDP per capita, and second, the impact of abnormal credit expansion on GDP per capita. Using data for 10 ECOWAS countries from 1993 to 2021, we find evidence that abnormal credit contraction reduces the GDP per capita of ECOWAS countries. We also find some evidence that abnormal credit expansion reduces the GDP per capita of ECOWAS countries. More specifically, a unit increase in abnormal credit contraction decreases GDP per capita by 0.99 percent while a unit increase in abnormal credit expansion decreases GDP per capita by only 0.1 percent. The findings confirm that ‘too little’ or ‘too much’ credit does not improve economic output per person in immature financial systems. We also observe that banking sector solvency and a strong legal system have a positive effect on the GDP per capita of ECOWAS countries while banking sector efficiency has a negative effect on GDP per capita.

Keywords: finance; credit; economic growth; economic output; ECOWAS; GDP per capita; abnormal credit; domestic credit to private sector. (search for similar items in EconPapers)
JEL-codes: E32 G21 G28 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban and nep-fdg
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Journal Article: Effect of abnormal credit expansion and contraction on GDP per capita in ECOWAS countries (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:114406

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