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Asymmetric Impact of Microfinance on Economic Growth: Evidence from Bosnia and Herzegovina
Smolo, Edib
Smolo, Edib
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2023-12
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Abstract
This study explores the correlation between microfinance loans (MFL) and economic growth in Bosnia and Herzegovina (Bosnia). It utilizes the non-linear Autoregressive Distributed Lag (NARDL) method to examine cointegration and short-run dynamics by analyzing quarterly data spanning from 2010 to 2022. The findings underscore the link between MFL shocks and long-term economic growth. The study unveils the unique effects of both positive and negative MFL shocks on growth, suggesting a non-linear relationship between microfinance loans and economic growth in Bosnia. However, the study concludes that the impact of MFL on Bosnia's GDP is adverse. Short-term fluctuations in MFL show no substantial influence on Bosnian economic growth. The coefficient of the error correction model is both negative and significant indicating the stability of the long-term relationship. This implies a rapid correction, with 46.4 % of the previous quarter's imbalance rectified within the current quarter. While our results are based on a single country, they align with recent criticisms of microfinance practices. Furthermore, our study offers a novel approach as it represents the first examination of the asymmetric relationship between MFL and GDP in Bosnia, providing valuable policy recommendations.