Publication:

Skewed credit and growth dynamics

While a large empirical literature finds that financial development is beneficial for economic growth, recent evidence suggests otherwise. We contribute to this debate by examining the link between credit growth skewness and long-run growth. Earlier literature found that economies that are characterized by negative skewness in private sector credit growth experience faster output growth. We revisit this relationship using a large panel dataset that encompasses both advanced and developing economies and the aftermath of the global financial crisis. While our results reconfirm an association between credit skewness and economic growth, the relationship is more nuanced than previously thought. The beneficial growth effects of negative skewness are evident only prior to 2000. Our findings help explain why credit cycles positively affected economic growth in emerging markets in the past and why advanced economies' growth has been sluggish since the 2008-2009 global financial crisis.