The effect of credit facilities on economic growth in Palestine

Abstract

This study investigated the impact of each type of credit facilities to private sector on economic growth in Palestine, using quarterly time series data from 2008q1 up to 2015q2. It aimed to achieve several objectives, mainly analyzing the impact of each type of facilities on the GDP, explaining the historical development of banking sector in Palestine, observing how GDP and each sector's facilities change over the period of analysis, identify the role of Palestine Monetary Authority (PMA) in directing the banking facilities to increase the economic growth, and Suggesting some recommendations to the relevant parties to enhance the Palestinian economy. The descriptive analysis was used to describe and to show how each variable varies across time. The secondary data was collected from Palestine Central Bureau of Statistics (PCBS) concerning GDP, while the variables related to credit facilities were obtained from PMA. In order to achieve the previous objectives the data were analyzed using different statistical tests such as: Unit root test (ADF) to check whether the data are stationary or not, Co-integration test to examine whether there exist a long-run relationship among variables, and finally using VECM estimates to measure numerically the short and long run impact of each type of facilities on the GDP. The results showed that in the short run there is a positive significant relationship between consumption facilities and economic growth, while this relationship doesn’t exist between any other type of credit facilities and economic growth. In the long run the results showed that the banking facilities for real estate and constructions (RCF), mining and manufacturing (MMF) and other facilities in private sector (OTHS) has a positive significant effect on GDP, in other words, the increase in each type of these facilities will result in increase of GDP. On the other hand, local and foreign trade facilities (LFTF), business and consumer service facilities (BCSF) has a negative significant effect on GDP, that is, an increase in such facilities may result in a reduction of GDP. The above results had implication for the economic growth in Palestine. More attention might be paid to raise the banking credits to the productive sectors specially mining and manufacturing, real estate and construction, agricultural activities, land development, tourism, hotel and restaurants, and securities purchasing activities. By supporting these sectors, they will be able to produce intermediate goods which can be used as alternative for foreign imports, and as a result reduce the trade balance deficit.