AN ASSESSMENT OF THE IMPACT OF THE SECTORAL DISTRIBUTION OF COMMERCIAL BANK CREDIT ON ECONOMIC GROWTH AND DEVELOPMENT IN TRINIDAD AND TOBAGO

Author(s): Central Bank Of Barbados

Created 26 Jul, 2010
Categories Working Papers
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In Trinidad and Tobago, commercial bank credit plays an important role in the way in which businesses and individuals finance economic transactions. This paper attempts to assess the impact of commercial bank credit on economic development. The paper draws heavily from the credit channel of the monetary transmission mechanisms, which states that credit influences economic growth through its impact on capital investment. It employs a vector error correction model to firstly assess the relationship between credit and investment, and secondly to determine the casual directionality of the relationship (if any). The model found that overall, credit and growth tends to demonstrate a ‘demand following’ relationship. However, further analysis revealed a ‘supply leading’ relationship between credit and growth within key sectors of the nonoil economy. These findings can have important implications for monetary policy and its impact on economic development.

An Assessment of the Impact of the Sectoral Distribution of Commercial Bank Credit on Economic Growth and Development in Tri.pdf (205.27 KB)
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