The Relationship between Bank Credit and Economic Growth in Vietnam

This research investigates how commercial bank credit to the private sector influences economic growth in Vietnam from a supply-side perspective. Using Johansen co-integration and Error Correction Models on time series data from 2005 to 2021, the study finds that bank credit positively affects Vietnamese economic growth in the long term. However, in the short term, there is a feedback effect from economic growth to private sector credit. Specifically, a 1 percentage point increase in real private sector credit leads to a 0.40 percentage point rise in real GDP in the long run. These results suggest that policymakers should prioritize long-term strategies to foster economic growth, such as developing a modern banking sector, creating an efficient financial market, and improving infrastructure to boost private sector credit, which is crucial for long-term growth.