Causality Relationship between Bank Credit and Economic Growth: Evidence from a Time Series Analysis on a Vector Error Correction Model in Cameroon

The study examines the causal relationship between bank credit and economic growth in Cameroon by considering the domestic credit to the private sector by banks (DCPSB) and bank deposit (BD) as proxies for bank credit development and gross domestic product per capita (GDPPC) for economic growth. Time series data from 1969-2013 were fitted into the regression equation using various econometric techniques such as stationarity test Augmented Dickey Fuller (ADF) and Johansen Multivariate Co-Integration Test. Vector Error Correction Model (VECM) was used to analyze the relationship between bank credit and economic growth. VECM outcomes show that there is a unidirectional causal relationship flowing from DCPSB and BD to GDPPC. This result is consistent with a number of earlier studies reviewed in the literature that find causality running from bank credit to gross domestic product, implying that monetary policies in favor of banking credit will definitely boost the economic development of Cameroon.