A Note on the Effect of Decomposing Credit for Explaining Brazilian Cross-State GDP Growth

Matos, Paulo; Santos, Davi Albuquerque V.

doi:10.5935/0034-7140.20200009

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Articles • Rev. Bras. Econ. 74 (2) • Apr-Jun 2020 • https://doi.org/10.5935/0034-7140.20200009 copy

A Note on the Effect of Decomposing Credit for Explaining Brazilian Cross-State GDP Growth ^* * Matos gratefully acknowledges financial support from CNPq-Brazil. Santos gratefully acknowledges financial support from CAPES-Brazil. For helpful comments on earlier drafts, we thank Emerson Marinho, Flávio Ataliba, Giovanni Beviláqua and Jaime de Jesus Filho. Also, we thankseminarparticipants at various institutions and conferencesand the anonymous referees for relevant remarks. All errors are ours.

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

We add to the literature on financial system and development by proposing an empirical exercise to better understand the channels through which credit drivers are able to promote economic growth. We estimate an extended version of Barro-style growth panel regression in difference. We measure the individual impact of household credit, enterprise credit and government credit on the Brazilian cross-state GDP growth from 2003 to 2017, controlling for exports, imports, years of schooling, government capital and current expenditures. We find that Brazilian cross-state growth depends more on the evolution of household credit than on credit to firms. We claim that we need to study the behavior of this insolvent economic growth driver, regardless of the benefits due to household credit. We highlight the negative role played by government credit to GDP given by the significant elasticity of −0.87.

Keywords
Credit; trade; government spending; growth

Main results	[1]	[2]	[3]	[4]	[5]
Main results	Restricted model	Disaggregating governemnt expenditures	Disaggregating trading variables	Disaggregating credit (Becket al., 2012Beck, T., Buyukkarabacak, B., Rioja, F. K., & Valev, N. T. (2012). Who gets the credit? And does it matter? Household vs. firm lending across countries. The B.E. Journal of Macroeconomics, 12(1), 1-44. http://dx.doi.org/10.1515/1935-1690.2262 http://dx.doi.org/10.1515/1935-1690.2262... )	Full model
Control for convergence
Real per capita GDP (lagged in log)	0.3973 ^* ***** p-value < 0.01. [0.0000]	0.3895 ^* ***** p-value < 0.01. [0.0000]	0.3565 ^* ***** p-value < 0.01. [0.0000]	0.3969 ^* ***** p-value < 0.01. [0.0000]	0.3109 ^* ***** p-value < 0.01. [0.0000]
Control variables
Years of schooling (in log)	-0.0262 [0.6433]	0.1192 ^ p-value < 0.05; [0.0368]	0.0446 [0.7013]	-0.1650 [0.1112]	0.1814 [0.2099]
Government expenditures to GDP	-0.6745 ^* ***** p-value < 0.01. [0.0000]		-0.6055 ^ p-value < 0.05; [0.0492]	-0.7634 ^* ***** p-value < 0.01. [0.0003]
Government capital expenditures to GDP		0.9841 ^* ***** p-value < 0.01. [0.0000]			1.0128 ^* ***** p-value < 0.01. [0.0000]
Government current expenditures to GDP		-1.6080 ^* ***** p-value < 0.01. [0.0000]			-1.7501 ^ ***** p-value < 0.01.* [0.0000]
Exportsand imports to GDP	-0.0269 [0.3357]	-0.0227 [0.5031]		-0.1248 ^ p-value < 0.05; [0.0122]
Exports to GDP			-0.7613 ^* ***** p-value < 0.01. [0.0000]		-0.7614 ^* ***** p-value < 0.01. [0.0000]
Imports to GDP			0.9824 ^* ***** p-value < 0.01. [0.0000]		0.7267 ^* ***** p-value < 0.01. [0.0000]
Credit variables
Overall banking sector credit to GDP	0.8507 ^* ***** p-value < 0.01. [0.0000]	0.7672 ^* ***** p-value < 0.01. [0.0000]	0.8297 ^* ***** p-value < 0.01. [0.0000]
Household credit to GDP				1.4071 ^* ***** p-value < 0.01. [0.0000]	0.9126 ^* ***** p-value < 0.01. [0.0000]
Enterprise credit to GDP				0.3459 ^* ***** p-value < 0.01. [0.0000]	0.2466 ^* * p-value < 0.10; [0.0516]
Government credit to GDP					-0.8658 ^* ***** p-value < 0.01. [0.0000]
B. Wald joint tests
𝛾_HC = 𝛾_GC = 𝛾_EC					61.4670 ^* ***** p-value < 0.01. [0.0000]
𝛾_HC = 𝛾_EC				30.8878 ^* ***** p-value < 0.01. [0.0000]	11.2668 ^* ***** p-value < 0.01. [0.0009]
𝜆_IM = 𝜆_EX			78.3112 ^* ***** p-value < 0.01. [0.0000]		36.1545 ^* ***** p-value < 0.01. [0.0000]
𝜃_CU = 𝜃_CA		30.501 1 ^* ***** p-value < 0.01. [0.0000]			36.8654 ^* ***** p-value < 0.01. [0.0000]
C. Complementary results
Arellano-Bond test - AR(2)	-2.5643 [0.0103]	-2.5160 [0.0119]	-1.4298 [0.1528]	-0.0008 [0.9994]	-1.9234 [0.0544]
Instrument rank	27	27	27	28	27
Sargan-Hansen test	26.1544 [0.2451]	26.1530 [0.2007]	24.6595 [0.2622]	24.5903 [0.3171]	20.9192 [0.2835]

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E-mail: rbe@fgv.br

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[1] paulomatos@caen.ufc.br

Real per capita GDP (in log)	-7.7414 ^* ***** p-value < 0.01.	Government expenditures to GDP	-1.4480^** * p-value < 0.10;
	[0.0000]		[0.0738]
Years of schooling (in log)	5.5267	Government capital expenditures to GDP	-2.0999 ^ p-value < 0.05;
	[1.0000]		[0.0179]
Overall banking sector credit to GDP	-8.8033 ^* ***** p-value < 0.01.	Government current expenditures to GDP	-0.2262
	[0.0000]		[0.4105]
Household credit to GDP	-9.7125 ^* ***** p-value < 0.01.	Exports and imports to GDP	-1.7618 ^ p-value < 0.05;
	[0.0000]		[0.0390]
Enterprise credit to GDP	-6.4273 ^* ***** p-value < 0.01.	Exports to GDP	-11.9939 ^* ***** p-value < 0.01.
	[0.0000]		[0.0000]
Government credit to GDP	-10.8679^* ***** p-value < 0.01.	Imports to GDP	-2.9654 ^* ***** p-value < 0.01.
	[0.0000]		[0.0015]