The investigation on the relationship between the problem of long‐term loan and economic growth

Purpose – Since the reform and opening‐up policy, the long‐term problem of loans became more and more serious when China's economy maintained rapid growth. The purpose of this paper is to explore the profound causes of the medium‐ and long‐term problem of loans and the relationship between it and economic growth. Design/methodology/approach – Using panel data for 28 provinces and cities of China during 1994‐2005, this paper investigates the determinants on the maturity of bank credit using threshold panel data of Hansen. In addition, using dynamics panel data, this paper investigates the effects of the maturity structure of bank credit on economic growth. Findings – The drop of bank industry concentration tends to increase the supply of long‐term loans. The raise of economic growth and the increase of industrialization degree promote the demand of long‐term loans, significantly. Furthermore, the threshold effects of inflation exist. When the initial inflation is lower than 3.9 percent, the raise of inflation can increase the supply of long‐term loans. When the initial inflation is higher than 3.9 percent, the raise of inflation can decrease the supply of long‐term loans. The increase in the supply of long‐term loans can promote the economic growth. Originality/value – The paper has two innovations: first, when studying the determinants on the maturity of bank credit, using the threshold panel approach takes account of the nonlinear adjustment of inflation; second, including the maturity of bank credit into the realm of financial development studies the relationship between this and economic growth.