Effect of credit growth limit on economic output in Vietnam: Firm-level empirical evidence

Abstract

This study examines the impact of the credit growth limit policy on the non-linear relationship between bank credit and economic output from a firm-level perspective. Unbalanced panel data of listed companies from 2004 to 2023 are analyzed using both static and dynamic models. The results show that, from a micro-level perspective, bank credit impacts both the scale of output and the operational efficiency of firms in an inverted U-shape. A key new finding is that the impact of bank credit on economic output tends to be more positive when the credit growth limit policy is implemented. This suggests that this policy has improved the capital allocation efficiency of the banking system. The implication is that the State Bank of Vietnam can utilize this policy to encourage commercial banks to adhere to the orientation of prioritizing economic sectors, thereby promoting more effective economic growth.