Dynamics of sectoral credit demand and effectiveness of credit distribution across the sectors

This dissertation focuses on demand side factors to explain sectoral credit growth in Turkey with a structural and holistic approach, and analyses the results of sectoral credit allocation. Moreover, allocative and productive efficiency of sectoral credit distribution is examined. The sectoral credit demand is explained by using the relative prices based on the economy model or TNT model and other variables obtained from credit tendency survey and former empirical studies. In addition, credit demand is examined in the distinction of tradable and non-tradable sector and different periods. In this context, panel analysis is used for subsectors of corporate, covering the period 2005:12-2018:12 with monthly data. The study is unique because dynamics of sectoral credit demand, by employing subsectors of corporate sector, is examined for the first time. It is also the first in terms of addressing sectoral credit demand by associating it with resource allocation within the framework of TNT model. It is found that there is strong positive link between relative prices and credit demand, and non-tradable sectors react more to relative price changes. Cost of credit affects credit demand negatively and its impact on non-tradable sectors is higher. Moreover, the positive role of maturity on credit demand is confirmed empirically. The rise in credit card spending has a negative impact on sectoral credit demand. Export influences credit demand of tradable sectors positively. Turnover index and employment, have positive impact on sectoral credit demand. In addition, effect of turnover index on credit demand is higher in tradable sectors, indicating that credit demand is more related with production in tradable sectors. The weight of non-tradable sectors in credit, employment and GDP has increased in Turkey with support of relative prices and economy policies. Promoting non-tradable sectors such as construction and services have caused to limited technological development and less productivity increase; thus, it affects long-run growth rate adversely, increases volatility in growth, worsens current account deficit and leads to an unsustainable economic model. Besides, indebtedness of economy has risen with inefficient use of credits. Allocative and productive efficiency of credit is high in tradable sectors, especially in manufacturing and mining sectors. Stimulating productive tradable sectors and information-communication sector can accelerate rebalancing of economy and can provide long-run sustainable growth. Keywords: credit demand, dependent economy model, relative prices, tradable and non-tradable sectors, productive and allocative efficiency