The Institutional Quality Effect on Credits Provided by the Banks

Azmat Gani*, Tareq Rasul

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

Research on developing economies is deficient in analysing institutional quality dimensions that are beyond standard determinants of the provision of credits by banks. This study fills this gap by adopting a broad-based modelling approach in examining the effects of institutional quality on credit provided by banks for a large sample of developing economies. A structural model, including balanced annual panel data from the World Bank World Development Indicators and Worldwide Governance Indicators for the period 2004 to 2017, was estimated using panel-corrected standard errors and two-stage least squares estimation techniques. The core variables determining the credit provided by banks were controlled for in the estimation phase. The findings showed that the rule of law, regulatory quality and the strength of legal systems are significant determinants of credit provided by banks, among other factors. Investments in improving institutional quality can be beneficial for credit diffusion by the banks. This study is distinct from previous empirical studies of the developing economies as it directs attention to institutional quality measures on bank credit expansion in an inclusive modelling framework. It makes a significant positive contribution to the finance institutional nexus literature in terms of understanding the value and role that institutional quality plays in fostering bank credit provision in developing economies.

Original languageEnglish
Pages (from-to)249-258
Number of pages10
JournalInternational Advances in Economic Research
Volume26
Issue number3
DOIs
Publication statusPublished - Aug 1 2020

Keywords

  • Bank credit
  • Developing countries
  • G38
  • Legal systems
  • O50
  • Regulatory quality

ASJC Scopus subject areas

  • Economics and Econometrics
  • Economics, Econometrics and Finance(all)

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