Bank credit’s role in influencing economic growth in the emerging market

The relationship between bank credit and economic growth has been subject to extensive empirical research. This study applied a vector autoregressive (VAR) approach to examine the relationship between bank credit and economic growth in South Africa based on three separate periods: pre-crisis (2001–2008), post-crisis (2009–2016), and the combined period. The findings suggested two-way causality between bank credit and economic growth in the post-crisis period; however, the combined sample found evidence of unidirectional causality in support of a demand-leading hypothesis. Bank credit was found to have a positive and statistically significant relationship with the gross domestic product (GDP) growth rate in the pre-crisis period, concurring with Miftari (2023) that the financial system is the crucial supporter of economic growth (economic activities). However, following the events of the financial crisis, both the post-crisis and combined samples revealed that bank credit had a negative influence on economic growth, and this confirms to Koutima-Banzouzi et al. (2024) and Tchouassi and Tomo (2022). Since the financial crisis, the South African economy has been plagued by many issues that have resulted in non-existent economic growth for some time, which, to some extent, has limited banks’ credit ability to positively influence economic growth in South Africa.