Too Much Finance For Whom? Rethinking The Credit–Output Nexus

Date

2026-8-11

Author

Huyugüzel Türk, Nurbanu

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This dissertation asks whether a single coefficient or a universal threshold can describe the relationship between credit and economic performance, and concludes that neither can. Two linked investigations are conducted. The first estimates the association between the pace of credit expansion and the sectoral composition of value added in an unbalanced annual panel covering 1992 to 2019 and up to 186 countries, comparing pre-crisis, post-crisis and full-period results and, in a separate partition, low-, middle- and high-income economies. Because the credit variables are integrated of order one while the sectoral value-added shares are stationary, credit enters in first differences, so the estimated nonlinearities lie in credit-growth rather than credit-depth space. Estimation uses fixed effects with Driscoll–Kraay standard errors and two-step System GMM, with functional form selected sequentially and turning points tested formally. The second builds a matched quarterly panel for Türkiye, pairing total cash credit with value added across eleven activity groups from 2005 to 2026, and estimates a cross-sectionally augmented error-correction model. Sectoral responses differ qualitatively, not only in magnitude. In the post-crisis decade faster credit growth accompanies a falling industrial share and a rising service share, while the industrial maximum shifts leftward as income rises, falling below zero in high-income economies. In Türkiye a negative average short-run coefficient conceals an inverted U peaking near 7.23 billion Turkish liras, and sectoral thresholds differ by more than an order of magnitude. Credit policy should therefore address the destination, timing and horizon of lending alongside its volume.

Subject Keywords

Financial Development, Credit Growth, Sectoral Value Added, Nonlinearity, Structural Transformation

URI

https://hdl.handle.net/11511/120035

Collections

Graduate School of Social Sciences, Thesis