The Impact of Banking Sector Credits on Economic Growth in Western Balkan Countries

Abstract

While it is widely acknowledged that bank credit can contribute to a country's economic growth by providing essential financing to the public and private sectors, the relationship between economic growth and bank credit is complex.  This study aims to explore the impact of bank credit, along with four other variables, domestic credit to private sector, deposit interest rate, inflation rate, and non-performing loans on economic growth in six Western Balkan countries from 2008-2021. The research, based on secondary data from international organizations, the World Bank, and National Statistical Agencies, utilized Panel data with 69 observations. Various econometric models including OLS, fixed effects and random effects were used due to unbalanced panels. Findings suggest a mixed impact of bank credit on growth, with inflation rate positively affecting it, while domestic credit to private sector, deposit interest rate, and non-performing loans have negative effects.