“Who Gets the Credit? And Does it Matter? Household vs. Enterprise Lending across Countries” by Thorsten Beck
While the theoretical and empirical finance literature has focused almost exclusively on enterprise credit, about half of credit extended by banks to the private sector in a sample of 45 developing and developed countries is to households. The share of household credit in total credit increases as countries grow richer and financial systems develop. Cross-country regressions, however, suggest a positive and significant impact on GDP per capita growth only of enterprise but not household credit. These two findings together partly explain why previous studies, such as Aghion et al. (2005), have found a small or insignificant effect of finance on growth in high-income countries. We also find that countries with a lower share of manufacturing, a higher degree of urbanization and more market-oriented financial systems, have a higher share of household credit. It is thus mostly socio-economic trends that determine credit composition, while policies influencing banking market structure and regulatory policies are not robustly related to credit composition.