This paper investigates the factors influencing credit growth in Kosovo, focusing on the relationship between credit activity and key economic variables, including GDP, FDI, CPI, and interest rates. Its analysis targets loans issued to businesses and households in Kosovo, employing a VAR model integrated into a VEC model to investigate the determinants of credit growth. The findings were validated using OLS regression. Additionally, the study includes a normality test, a model stability test (Inverse Roots AR Characteristic Polynomial), a Granger causality test for short-term relationships, and variance decomposition to analyze variable shocks over time. This research demonstrates that loan growth is primarily driven by its historical values. The VEC model shows that, in the long run, economic growth in Kosovo leads to less credit growth, showing a negative link between it and GDP. Higher interest rates also reduce credit growth, showing another negative link. On the other hand, more foreign direct investment (FDI) increases credit demand, showing a positive link between credit growth and FDI. The results show that loans and inflation (CPI) are positively linked, meaning higher inflation leads to more credit growth. Similarly, more foreign direct investment (FDI) increases credit demand, showing a positive link between FDI and credit growth. In the long term, higher inflation is connected to greater credit growth. In the short term, the VAR model suggests that GDP has a small to moderate effect on loans, while FDI has a slightly negative effect. In the VAR model, interest rates have a mixed effect: one coefficient is positive and the other negative, showing a delayed negative impact on loan growth. CPI has a small and negative effect, indicating little short-term influence on credit growth. The OLS regression supports the VAR results, finding no effect of GDP on loans, a small negative effect from FDI, a strong negative effect from interest rates, and no effect from CPI. This study provides a detailed analysis and adds to the research by showing how macroeconomic factors affect credit growth in Kosovo. The findings offer useful insights for policymakers and researchers about the relationship between these factors and credit activity.

Akani, H. W., & Onyema, J. I. (2017). Determinants of credit growth in Nigeria: A multi-dimensional analysis. Journal of Economics and Sustainable Development, 8(20), 201–215.

Albaity, M., Saadaoui Mallek, R., Al-Tamimi, H. A. H., & Molyneux, P. (2023). Do trust and country governance affect credit growth in GCC countries? International Journal of Islamic and Middle Eastern Finance and Management, 16(3), 516-538.

Alihodžić, A., & Ekşï, İ. H. (2018). Credit growth and non-performing loans: evidence from Turkey and some Balkan countries. Eastern Journal of European Studies, 9(2).

Allen, F., Jackowicz, K., Kowalewski, O., & Kozłowski, Ł. (2017). Bank lending, crises, and changing ownership structure in Central and Eastern European countries. Journal of Corporate Finance, 42, 494–515. http://dx.doi.org/10.1016/j.jcorpfin.2015.05.001

Al-Shammari, A., & El-Sakka, M. I. (2018). Determinants of credit growth in the private sector: Evidence from selected OECD countries. International Journal of Economics and Finance, 10(1), 121-132.

Appiah-Otoo, I. (2020). Does COVID-19 affect domestic credit? Aggregate and bank-level evidence from China. Asian Economics Letters, 1(3).

Awdeh, A. (2017). The determinants of credit growth in Lebanon. International Business Research, 10(2), 9–19. https://doi.org/10.5539/IBR.V10N2P9

Baoko, G., Acheampong, I. A., & Ibrahim, M. (2017). Determinants of bank credit in Ghana: A bounds-testing cointegration approach. African Review of Economics and Finance, 9(1), 33-61.

Bekbossinova, A., Vasa, L., & Nurekenova, E. (2024). THE RELATIONSHIP BETWEEN BANK LENDING AND ECONOMIC FACTORS IN THE REGIONS OF KAzAKHSTAN.

Bilgin, M. H., Danisman, G. O., Demir, E., & Tarazi, A. (2020). Bank credit in uncertain times: Islamic vs. conventional banks. Finance Research Letters, 39, 101563. https://doi.org/10.1016/j.frl.2020.101563

Bressler, S. L., & Seth, A. K. (2011). Wiener–Granger causality: A well-established methodology. NeuroImage, 58(2), 323–329. https://doi.org/10.1016/j.neuroimage.2010.02.059

Brooks, C. (2008). Introductory econometrics for finance (2nd ed.). Cambridge University Press.

Brooks, C. (2014). Introductory econometrics for finance (3rd ed.). Cambridge University Press. https://doi.org/10.1017/CBO9781139540872

Cantú, C., Claessens, S., & Gambacorta, L. (2022). How do bank-specific characteristics affect lending? New evidence based on credit registry data from Latin America. Journal of Banking & Finance, 135, 105818.

Dickey, D. A., & Fuller, W. A. (1979). Distribution of estimators for time series regressions with a unit root. Journal of the American Statistical Association, 74(366), 427–431. https://doi.org/10.2307/2286348

Gozgor, G. (2014). Determinants of domestic credit levels in emerging markets: The role of external factors. Emerging Markets Review, pp. 18, 1–18. https://doi.org/10.1016/j.ememar.2014.03.001

Granger, C. W. J. (1981). Some properties of time series data and their use in econometric model specification. Journal of Econometrics, 16(1), 121–130. https://doi.org/10.1016/0304-4076(81)90079-8

Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw-Hill/Irwin. https://thuvienso.hoasen.edu.vn/handle/123456789/8914

Hansen, H., & Johansen, S. (1999). Some tests for parameter constancy in cointegrated VAR models. The Econometrics Journal, 2(2), 306-333. https://doi.org/10.1111/1368-423X.00035

Ivanović, M. (2016). Determinants of credit growth: The case of Montenegro. Journal of Central Banking Theory and Practice, 5(2), 101–118. https://doi.org/10.1515/jcbtp-2016-0013

Iwanicz-Drozdowska, M., & Witkowski, B. (2016). Credit growth in Central, Eastern, and South-Eastern Europe: The case of foreign bank subsidiaries. International Review of Financial Analysis, 43, 146-158. https://doi.org/10.1016/j.irfa.2015.11.010

Iwanicz-Drozdowska, M., & Witkowski, B. (2021). Bank ownership and drivers of credit growth in Central, Eastern and South-Eastern Europe. Acta Oeconomica, 71(1), 1-32. https://doi.org/10.1556/032.2021.00001

Jović, D., & Jandrić, M. Determinants Of Credit Growth In Banking Sector Of Bosnia And Herzegovina//Determinante Kreditnog Rasta U Bankarskom Sektoru Bosne I Hercegovine. Emc Review-Economy And Market Communication Review, 12(2). https://doi.org/10.7251/EMC1602233J

Kouretas, G. P., & Pawłowska, M. (2020). Does change in the market structure have any impact on different types of bank loans in the EU? Journal of International Financial Markets, Institutions and Money, 65, 101165. https://doi.org/10.1016/j.intfin.2019.101165

Lazarov, D., Nikolov, M., & Simeonoski, K. (2023). Macroeconomic and bank-specific determinants of bank loans to private sector: The case of North Macedonia. Industrija, 51(1), 7-28.

Mihaylova-Borisova, G. (2023). Determinants of Credits on Private Sector in CEE Countries. Economic Research Guardian, 13(1), 2-15.

Norawati, S., Zulher, Z., Kasmawati, K., & Ratnasih, C. (2022). The effectiveness of the determinants of banking credit growth. Accounting, 8(3), 287-292. http://dx.doi.org/10.5267/j.ac.2021.12.001

Pasaribu, P., & Mindosa, B. (2021). The bank specific determinants of loan growth and stability: evidence from Indonesia. Journal of Indonesian Economy and Business, 36(2), 93-123.

Perez, P. (2017). An analysis of private sector credit growth in Belize: A VECM approach. In 49th Annual Monetary Studies Conference.

Pesaran, M. H. (2015). Time series and panel data econometrics. Oxford University Press.

Pesaran, M. H., & Shin, Y. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58(1), 17–29. https://doi.org/10.1016/S0165-1765(97)00214-0

Petkovski, M., Naumovska, E., Jovanovski, K., & Trenovski, B. (2016). Determinants of bank credit growth in Macedonia. In The changing role of finance in today’s global economy (pp. [insert page numbers]). Ss. Cyril and Methodius University in Skopje, Faculty of Economics-Skopje. http://hdl.handle.net/20.500.12188/4734

Pham, N. H., Thach, N. N., Van Ngo, T., & Hoang, T. M. (2024). Credit Growth: An Investigation of Vietnamese Commercial Banks. In Optimal Transport Statistics for Economics and Related Topics (pp. 533-543). Cham: Springer Nature Switzerland.

Shijaku, G., & Kalluci, I. (2013). Determinants of bank credit to the private sector: The case of Albania.

Shingjergji, A., & Hyseni, M. (2015). The impact of macroeconomic and banking factors on credit growth in the Albanian banking system. European Journal of Economics and Business Studies, 1(2), 113–120. https://doi.org/10.26417/ejes.v2i1.p113-120

Sims, C. A. (1980). Macroeconomics and reality. Econometrica, 48(1), 1-48. https://doi.org/10.2307/1912017

Studenmund, A. H. (2014). Using econometrics: A practical guide (6th ed.). Pearson.

Thierry, B., Jun, Z., Eric, D. D., Yannick, G. Z. S., & Landry, K. Y. S. (2016). Causality relationship between bank credit and economic growth: Evidence from a time series analysis on a Vector Error Correction Model in Cameroon. Procedia-Social and Behavioral Sciences, 235, 664-671. doi: 10.1016/j.sbspro.2016.11.061