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The impact of bank lending on Palestine economic growth: an econometric analysis of time series data

Author

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  • Ibrahim M. Awad

    (Al-Quds University – Abu Dis Campus)

  • Mohammed S. Karaki

    (Hebron University)

Abstract

Banking is an essential sector of Palestine’s economy. More credits provided by banks are considered to have a positive impact on economic growth so that the overall objective of this study is to examine the impact of bank lending on economic growth in Palestine. The study employs the Augmented Dickey-Fuller to test for stationarity in the time series, The Johansen co-integration, Vector Autoregressive Model and Vector Error Correction Model are employed to identify the long-run and short-run dynamics among the variables, and Granger causality test in order to determine the direction of causality. The study finds that a long run relationship exists among the variables and insignificant short run relationship. Also, the study findings show that there is unidirectional causality and runs from GDP to bank lending. The insignificant contribution of bank lending to GDP is attributed to the fact that banks are not highly interested in lending to the production sector of the economy due to the high level of risk. However, the primary empirical evidence reveals that bank lending doesn’t cause economic growth, but economic growth causes bank lending.

Suggested Citation

  • Ibrahim M. Awad & Mohammed S. Karaki, 2019. "The impact of bank lending on Palestine economic growth: an econometric analysis of time series data," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-21, December.
    • Handle: RePEc:spr:fininn:v:5:y:2019:i:1:d:10.1186_s40854-019-0130-8
    DOI: 10.1186/s40854-019-0130-8
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    2. Tanni Roy & Md. Emran Hossain & Md. Jahid Ebn Jalal & Jiban Krishna Saha & Eshrat Sharmin & Md. Akhtaruzzaman Khan, 2021. "Effects of credit on national and agricultural GDP, and poverty: a developing country perspective," SN Business & Economics, Springer, vol. 1(10), pages 1-20, October.
    3. Ibrahim M. Awad & Wael Alazzeh, 2020. "Using currency demand to estimate the Palestine underground economy: An econometric analysis," Palgrave Communications, Palgrave Macmillan, vol. 6(1), pages 1-11, December.
    4. Mosab I. Tabash & Umar Farooq & Samir K. Safi & Muhammad Nouman Shafiq & Krzysztof Drachal, 2022. "Nexus between Macroeconomic Factors and Economic Growth in Palestine: An Autoregressive Distributed Lag Approach," Economies, MDPI, vol. 10(6), pages 1-14, June.
    5. Obiora, Sandra Chukwudumebi & Zeng, Yong & Li, Qiang & Liu, Hao & Adjei, Peter Darko & Csordas, Tamas, 2022. "The effect of economic growth on banking system performance: An interregional and comparative study of Sub-Saharan Africa and developed economies," Economic Systems, Elsevier, vol. 46(1).
    6. Ikhsan Ikhsan & Khairul Amri, 2023. "Sectoral Growth Impacts of Bank Credit Allocation: The Role of COVID-19 Pandemic as Moderating Variable," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 32-50.
    7. Saleh F. A. Khatib & Ernie Hendrawaty & Ayman Hassan Bazhair & Ibraheem A. Abu Rahma & Hamzeh Al Amosh, 2022. "Financial Inclusion and the Performance of Banking Sector in Palestine," Economies, MDPI, vol. 10(10), pages 1-15, October.

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