Journal of Economics, Finance and Management Studies ISSN (print): 2644-0490, ISSN (online): 2644-0504 Volume 5 Issue 04 April 2022 Article DOI: 10.47191/jefms/v5-i4-16, Impact Factor: 6.274 Page No. 1071-1083 JEFMS, Volume 5 Issue 04 April 2022 www.ijefm.co.in Page 1071 Which Sector-Based Bank Lending Facilities can Contribute to Long-Term Economic Growth? : Indonesian Study Mei Sulfia Nurinda 1 , Imam Mukhlis 2 1 Student of Economics and Development Department on Faculty of Economic and Business, State University of Malang (UM), Indonesia 2 Economics and Development Department on Faculty of Economic and Business, State University of Malang (UM), Indonesia ABSTRACT: Knowing which sector credit facilities can contribute to increasing economic growth in the long term in Indonesia, is the main objective of the research. This research uses secondary data as quarterly data from 2010Q1 to 2019Q4. Using the VECM approach to identify long-term effects, equipped with structural analysis to determine the response to shocks as well as the resulting contribution. Overall sectoral bank credit facilities have a significant long-term impact on GDP, it was found, though of a different nature. The positive nature of credit facilities for the agricultural sector, wholesale and retail trade sector, and the transport, warehousing and communications sectors, while credit for manufacturing, construction, and financial intermediaries had the opposite impact. A credit shock for construction and financial intermediary sector loans responded positively in the long and short term, while credit for the manufacturing sector received the largest negative response. The largest contribution to economic growth came from manufacturing sector credit, financial intermediary sector credit, agricultural sector credit, and lastly, construction sector credit. Researchers suggest increasing credit allocations to agribusiness, discount and retail exchange, and the transport and communications sectors to meet long-term goals, while in the short term, maximizing the allocation of credit between the manufacturing sector, the financial intermediaries sector, and the transport and communications sector. KEYWORDS: Economic Growth, Sectoral Bank Credit, Short-Term Causality, VECM I. INTRODUCTION Measuring the success of economic development in a country, especially developing countries, is often seen from the level of economic growth. Economic growth is seen as important because it is linked to a community's standard of living (Joseph, 2020) which shows an increase in income, the breadth of business fields to the high job opportunities provided by business actors in various economic sectors. According to (BPS Indonesia, 2021), economic growth comes from how much-added value is created by all sectors in a particular country or the absolute value of the labor force and the conclusive products supplied by all economic units. Several studies assessed that to implement the development targets, credit must be involved. Credit cannot be ignored, especially in developing countries which are often trapped in a poverty network (Amoo et al., 2017). The existence of credit will stimulate demand for labor which results in high incomes and a reduction in poverty (Sipahutar et al., 2016). The credit is used as an enterprise capital provider, ensuring the production process runs regularly and continuously. Credit is felt to be able to encourage economic activity (Awad & Al Karaki, 2019) because it can achieve growth target for more advanced economic development (Alzyadat, 2021; Ubesie et al., 2019), especially in developing countries (Majeed & Iftikhar, 2020). Researchers in various countries, not a few are interested in the topic of the influence of credit and economic growth. The finding detained by several researchers stated a positive significance between the two. If economic growth to reaches a high value, the bank’s credit allocation to the economic sector must be increased. The progress of the economic sector can produce more abundant output so that the positive impact is the expansion of job opportunities and the high demand for goods/services. Some researchers have a positive influence such as (Abusharbeh, 2017; Alzyadat, 2021; Ananzeh, 2016; Korkmaz, 2015; Oni et al., 2014; Timsina & Pradhan, 2016) although the title of causality has not been determined (Perera, 2017). Two types of causality directions are created, namely one-way and two-way. One-way causality is felt in the case of Nigeria. Through Granger’s VAR causality test, (Okafor et al., 2016) found that the direction of causality does not run from GDP to credit, but from credit to economic growth. Cameroon found the same thing with the VECM testing method (Thierry et al.,