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Short-Versus Long-Term Credit and Economic Performance: Evidence from the WAEMU

Author/Editor: Kpodar, Kangni | Gbenyo, Kodzo
Authorized for Distribution: May 1, 2010
Electronic Access: Free Full Text (PDF file size is 1,005KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper studies the link between financial development and economic growth in the West African Economic and Monetary Union (WAEMU). Using panel data for WAEMU countries over the period 1995-2006, the results suggest that while financial development does support growth in the region, long-term bank financing has a greater impact on economic growth than short-term financing because long-term projects have higher returns adjusted for risks. Given that in the WAEMU short-term credit accounts for about 70 percent of credit to the private sector, WAEMU countries are less able to reap the full benefits of improvements in their financial systems. The results also highlight the importance of macroeconomic stability, a creditor-friendly environment, political stability, and the availability of long-term financial resources in fostering banks’ supply of long-term loans.
 
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Series: Working Paper No. 10/115
Subject(s): Bank credit | Banking sector | Credit risk | Cross country analysis | Economic growth | Economic models | Excess liquidity | Financial incentives | Human capital | Loans | Political economy | Time series | West African Economic and Monetary Union
Author's keyword(s): Financial development | growth | WAEMU
 
English  
    Published:   May 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010115   Pages:   32
    Price:   US$18.00
       
     
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