Investigating the relationship between private sector credit extension and economic growth: A case study of Namibia

Financial development, especially through the mechanism of private sector credit lines, has an important role to play in an economy’s growth. As such, economies with better financial institutions for lending and borrowing funds have the potential to grow faster. This is so because better financial systems alleviate external financing constraints that may hinder business growth and expansion. In light of this, the study investigated the relationship between private sector credit extension and economic growth in Namibia. Using quarterly data on Gross Domestic Product (GDP) and other variables covering the years from 2005 to 2017. The study employed co-integration and error correction procedures. From the results the study concluded that there is an existence of a positive relationship between private sector credit extension (PSCE) and economic growth. Our findings are consistent with theoretical propositions. The causality test indicated a unidirectional relationship running from PSCE to GDP entailing that the extension of credit to the private sector would enhance GDP growth and not vice versa. Based on these findings, it is recommended that the policy makers focus on long term economic growth policies, develop the financial sector, promote the development of efficient financial markets and infrastructure in order to increase the private sector credit lines which are instrumental in long term growth