- Title
- Inflation, credit markets and economic growth: the case of BRICS Countries
- Creator
- Barayi, Bavuyile
- Subject
- Economic development -- BRIC countries
- Subject
- Inflation (Finance) -- BRIC countries
- Date Issued
- 2021-12
- Date
- 2021-12
- Type
- Master's theses
- Type
- text
- Identifier
- http://hdl.handle.net/10948/53700
- Identifier
- vital:45714
- Description
- The empirical study investigates the relationship between inflation, credit markets and economic growth in the context of Brazil, Russia, India, China and South Africa (BRICS) countries. The BRICS group consists of five emerging market economies and was first coined by Jim O’Neil of Goldman Sachs in 2001 whereby initially the bloc consisted of only Brazil, Russia, India, China, South Africa joined the BRICS group in 2010. The BRICS bloc was deemed to be the top fast-growing economies that showed great potential for growth. Consequent to the 2008 global financial crisis, there has been a large change in economic thinking as policy-makers have struggled to overcome the economic misfortunes caused by the crisis. Amongst the emerging countries, the BRICS countries have in effect, established a New Development Bank to play the role of the credit facilitator the BRICS countries and other emerging countries as well. This BRICS New Development Bank was established in 2014 and already has identified and funded some projects within the BRICS countries. Moreover, the main objective of this bank is to provide credit to be utilised for infrastructure, climate change measures, as well as to ensure sustainable development. Against this backdrop, the current study investigates the role played by credit and the extent of development in credit markets on enhancing growth in the BRICS countries, particularly looking at the levels of inflation that are conducive to credit market development. The study notes that in order for credit expansion to be successful, the credit received by a country must reflect positively on a country’s economic growth. In other words, with more credit coming into a country, the expected result is that there will also be a rise in economic growth. Furthermore, seeing that inflation erodes the value of money, this credit or these funds that a country receives may not have the expected influence on growth. Therefore, the study finds it imperative to investigate the levels at which inflation allows for credit expansion to promote growth in a country. Furthermore, central banks play an important role in credit markets via the interest rate channel and the study examines the role of monetary policy in credit markets of each of the BRICS countries by looking at the inflation targeting regime as well as the absence thereof within these countries. Moreover, BRICS central banks share more or less the same goal of maintaining price stability and low inflation through various monetary policy tools. Therefore, achieving this objective will allow a central bank to gain both investor and consumer confidence which plays a role in a country’s investment rates. Moreover, inflation that is not controlled results in uncertainty which makes investors hesitant and unwilling to embark on investments. Ha, Ivanova, Ohnsorge and Unsal (2019) associate a developed financial sector with low inflation, stating that stable inflation rates eliminate uncertainty and avoids the erosion of the value of money. The current study used an Autoregressive Distributed Lag (ARDL) model to examine the linear co-integration and Non-linear Autoregressive Distributed Lag (NARDL) for the non-linear empirical analysis of the relationship between inflation, credit markets and economic growth in BRICS countries. The non-linearity of this relationship is important to study as there has been many debates on the nature of the inflation-growth relationships with some studies implying that it is positive, some say it is a negative relationship and some say it is non-linear. The annual data time series is extracted from the World Bank Indicators and the Penn State database covering the period 1960-2019. The main variables used in the study are Inflation (CPI), Credit (Domestic Credit to Private Sector) and Economic growth (GDP). The study conducted various regressions including the total of five linear regressions which were run individually for each country, the non-linear regressions consisted of three regressions for each country which were on 1) Only Inflation partitioned, (2) Only Credit partitioned and (3) both Inflation and Credit were partitioned. The partitioning of the variables is made possible by the NARDL model which allows variables to be partially decomposed into negative and positive sums to identify thresholds of variables which have various effects on other variables. The overall findings of the study suggest that although inflation exerts various effects on growth, according to this study’s results, it does not have a significant impact on credit for all the countries except for China whereby credit in general is conducive to economic growth and Brazil where growth is enhanced when credit is declining. The study revealed that generally, inflation exerts a negative impact on growth, therefore, authorities must focus on keeping inflation rates low particularly for Russia, India and South Africa as Brazil’s results suggest that rising inflation is conducive to its economic growth in the long run. According to the findings of this study, credit does not have the significant impact on growth even under different inflation thresholds. Furthermore, this does not imply that the credit channel is a futile tool for authorities, the relationship between inflation, credit and growth particularly with the hypothesis that inflation enhances credit market development and therefore growth, is not significant.
- Description
- Thesis (MCom) -- Faculty of Business and Economic Sciences, School of Economics, Development & Tourism, 2021
- Format
- computer
- Format
- online resource
- Format
- Format
- 1 online resource (135 pages)
- Publisher
- Nelson Mandela University
- Publisher
- Faculty of Business and Economic Sciences
- Language
- English
- Rights
- rights holder
- Rights
- All Rights Reserved
- Rights
- Open Access
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Collections
NMU School for Economics, Development and Tourism
| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | SOURCE1 | Barayi, B.pdf | 1 MB | Adobe Acrobat PDF | View Details Download |