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http://dx.doi.org/10.13106/jafeb.2021.vol8.no7.0031

Bank Liquidity and Economic Development in Underdeveloped Regions: An Empirical Study in Indonesia  

JUMONO, Sapto (Department of Management, Faculty of Economics and Business, Esa UNGGUL University)
ISKANDAR, Muhammad Dhafi (Department of Management, Faculty of Economics and Business, Esa UNGGUL University)
ADHIKARA, Muhammad Fachrudin Arrozi (Department of Accounting, Faculty of Economics and Business, Esa UNGGUL University)
MALA, Chajar Matari Fath (Department of Management, Faculty of Economics and Business, Esa UNGGUL University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.7, 2021 , pp. 31-42 More about this Journal
Abstract
This study aims to determine the relation between the real sector and the financial sector in underdeveloped areas in Nusa Tenggara, Indonesia. To facilitate understanding of these linkages, researchers use the logic of credit channel mechanism of monetary policy, financial intermediation, as well as supply leading and demand following theories. The research variables include economic growth, inflation, liquidity, and NPL at the provincial level, with a data sample from 2008 to 2019. This research uses VAR/VECM as the analysis tools. The findings of the long-term analysis in East Nusa Tenggara show there is a phenomenon of cost-push inflation as well as the negative relation between inflation and economic growth. The impact of liquidity on inflation is positive, while the impact of economic growth on inflation is negative. Meanwhile, in West Nusa Tenggara, the impact of economic growth on inflation is positive. On the other hand, the impact of liquidity and NPL on inflation and economic growth is negative. In conclusion, generally, the economy in West Nusa Tenggara is better than the East Nusa Tenggara. The key to improving the economy of Nusa Tenggara is by improving its liquidity. This can be done by increasing the volume of public savings to increase bank credit capacity.
Keywords
Regional Economic Growth; Liquidity; Inflation; NPL; Credit Capacity;
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