Loans can have a significant impact on economic growth, although the relationship between the two variables is complex and can vary depending on various factors. Here are some key points to consider:
1. Debt Surges and Economic Growth: Research suggests that debt surges tend to be followed by weaker economic growth and persistently lower output . However, it is important to note that this negative relationship does not always hold true in every situation.
2. Bidirectional Relationship: The relationship between loans and economic growth is bidirectional. Lower rates of economic growth can lead to increasing levels of debt, and a third factor can jointly affect both variables .
3. Causal Link: Future research should focus on finding a causal link between public debt and economic growth. It is important to establish whether the relationship is unidirectional or bidirectional .
4. Controlling for Confounding Factors: When studying the impact of loans on economic growth, it is crucial to control for confounding factors and variables. This ensures that the results are robust and reliable .
5. Access to Capital for Small Businesses: Loans, such as revolving loan funds, can provide access to capital for small businesses, enabling them to grow, generate new employment opportunities, and create wealth .
6. Excessive Debt and Economic Activity: Excessive debt can lead to an increase in economic activity in the short term, as it shows up in GDP growth data. However, this increase may not create economic value and can result in nonproductive investment .
7. Financial Inclusion and Economic Growth: Non-performing loans and financial exclusion can have direct implications on the economic growth of a country .
8. Lack of Evidence for Causal Link: Some studies have failed to find evidence of a causal link between public debt and economic growth . In fact, negative growth effects may increase public debt levels by inflating long-term real interest rates .