The impact of loans and interest rates on economic growth in the Republic of North Macedonia

Abstract

The subject of this paper is the impact of loans to the private sector and real interest rates on the nominal gross domestic product in North Macedonia, in the period from 2000 to 2018. The research is based on correlation analysis and descriptive statistics of variables, stationarity and cointegration tests, as well as evaluation of the VECM model. Additionally, based on the evaluated VECM model, a test for short-term cause-effect relationship was performed, i.e. Granger test for causality, as well as the function of the impulse response to variables in shock conditions, and decomposition of their variance. The evaluated VECM model, i.e. the equations within it, are statistically significant and have good adaptability, whereby all the assumptions of the method of ordinary least squares are met. In other words, it means that the results obtained are stable and reliable. The results show that lending to the private sector has a positive impact on GDP in North Macedonia in the analyzed period, in the short and long term, while real interest rates have a negative impact, also in the short and long term. Credits have increased the supply in the research period which has a positive impact on economic activity, while on the other hand, the relationship between interest rates and GDP growth gives us a negative direction of income distribution in the country.