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Who gets the credit ? and does it matter ? household vs. firm lending across countries

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Author Info
Beck, Thorsten
Buyukkarabacak, Berrak
Rioja, Felix
Valev, Neven

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Abstract

While the theoretical and empirical finance literature has focused almost exclusively on enterprise credit, about half of credit extended by banks to the private sector in a sample of 45 developing and developed countries is to households. The share of household credit in total credit increases as countries grow richer and financial systems develop. Cross-country regressions, however, suggest a positive and significant impact on gross domestic product per capita growth only of enterprise but not household credit. These two findings together partly explain why previous studies have found a small or insignificant effect of finance on growth in high-income countries. In addition, countries with a lower share of manufacturing, a higher degree of urbanization, and more market-oriented financial systems have a higher share of household credit. It is thus mostly socio-economic trends that determine credit composition, while policies influencing banking market structure and regulatory policies are not robustly related to credit composition.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4661.

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Date of creation: 01 Jul 2008
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Handle: RePEc:wbk:wbrwps:4661

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Keywords: Access to Finance; Banks&Banking Reform; Economic Theory&Research; Debt Markets;

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