Credit Volume and Economic Growth: A Panel Data Analysis of Five CIS Economies

Abstract

This study investigates the relationship between banking sector credit volume and economic growth across five CIS economies — Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan and Azerbaijan — over the period 2013–2023, using an unbalanced panel of 55 observations. The dependent variable is the annual real GDP growth rate (Y); the three explanatory variables are credit to the private sector as a share of GDP (X₁), the CPI inflation rate (X₂), and trade openness as (Exports+Imports)/GDP (X₃). Three estimation strategies are applied and compared: Pooled OLS, Fixed Effects (LSDV) and Random Effects (GLS). An F-test for individual fixed effects (F = 19.714 >> Fᵐᵉⁿ = 2.570) confirms significant cross-country heterogeneity, making Pooled OLS inconsistent; the Hausman test (χ² = 4.493 < 7.815) indicates that Random Effects is preferred over Fixed Effects, but the Fixed Effects model is retained as a robust conservative specification. In the FE model, trade openness is the dominant and statistically significant driver of growth (t = 6.026 >> 2.012), while private credit exerts a negative but borderline-insignificant effect (t = −1.808), consistent with the “too-much-finance” literature when credit expansion outpaces institutional capacity. The results carry concrete policy implications for credit market development and financial sector reform in the region.