Credit Rationing: Some International Evidence

Abstract

This study was prompted by the consumer financial distress in South Africa in recent years, characterized by skyrocketing interest rates. It was thus important to understand how the South African Credit Market works. Namely, how credit supply and demand interact over time, and what drives them. Moreover, it was important to understand how the credit market of South Africa as an emerging economy compares to the credit market of an advanced economy such as the United States of America. The end goal was to determine whether credit was restricted in South Africa, and if so, how much more or less than in the USA. To achieve the above goal, credit supply and demand models were estimated for each country as functions of real interest rate, real GDP, and real House Price Index. The models were estimated using the Two Stage Least Squares regression technique. It was found that only the real GDP was statistically significant in explaining credit supply and demand for both countries. Moreover, it was found that no significant restriction of credit was present for both countries over the observation period, contrary to what the literature says.