Short versus Long Term Credit and Economic Performance: Evidence from the WAEMU
This paper studies the link between financial development and economic growth in the West African Economic and Monetary Union (WAEMU). It finds that while financial development supports growth in the region, long-term bank financing has a greater impact on economic growth than short-term financing. The fact that short-term credit accounts for about 70 percent of credit to the private sector in the WAEMU means that countries in the region are less able to reap the full benefits of improvements in their financial systems. The paper also finds that macroeconomic stability, a creditor-friendly environment, political stability, and the availability of long-term financial resources encourage banks to provide long-term financing, which stimulates growth.
The results are robust to various panel data econometric methods, including fixed effects, the instrumental variable approach, and panel cointegration analysis.