Credit and resource allocation in EMEs: taking stock of two decades of falling interest rates

Key takeaways

• Since interest rates declined in the early 2000s, credit expanded strongly and its allocation changed significantly in emerging market economies (EMEs).
• Being largely spared by the Great Financial Crisis (GFC), EMEs have seen credit increasingly flowing to the construction and real estate sectors at the expense of manufacturing. Due to lower productivity growth in the housing sector, this shift has coincided with decreasing growth rates.
• Strong credit growth concentrated in a few sectors has also been associated with greater dispersion of productivity across firms, suggesting less efficient resource allocation.