This study examined the effect of financial credit from Other Depository Corporations (ODCs), namely, commercial banks, credit institutions, and micro-deposit-taking institutions, on sectoral economic growth in Uganda. Using quarterly panel data from 2010/11 to 2023/24 financial years across ten economic sectors, we employed the panel ARDL-PMG model complemented with Dumitrescu-Hurlin panel causality test. The results reveal that commercial bank credit and micro-deposit taking institutions’ credit exert significant positive long-run effects on sectoral GDP, though the elasticities are relatively inelastic at 0.38% and 0.12% for a 1% increase in credit from respective ODCs. By contrast, credit institutions’ credit shows no significant long run effect. Additionally, credit from all ODCs showed no significant overall short-run effect. Robustness checks, including re-estimation of ARDL-PMG model with a sample of sectors and Prais-Winsten regressions with panel-corrected standard errors (PCSEs), confirm the stability of the findings. Policy implications point to the need for targeted and risk-sharing interventions, such as concessional lending to high-potential sectors, credit guarantee facilities and sector-specific subsidies through commercial banks and micro-deposit-taking institutions, rather than generalized interest rate reductions. These approaches can expand access to affordable credit, improve allocation efficiency and stimulate inclusive development.
Katende et al. (Thu,) studied this question.