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Item Restricted Credit in the Philippine macroeconomy(2004-10) Bas, Maria Rona F.; Buenaorbra, Kathleen Therese B.; Basilio, JoselitoFinancial institutions play an essential role in promoting the growth of the economy. They are the instruments through which funds are transferred from people who have an excess of available funds to those who have productive investment opportunities. There is great interest in exploring the possible associations between the financial system and aggregate economic activity. Interest has grown in the belief that financial markets and institutions have important roles in the growth and fluctuation of economic activity. The functions and services financial markets provide show their importance in the process of economic growth. This study investigates the empirical relationship between lending standards and aggregate economic indicators in the Philippine setting using a two-stage least squares regression analysis. It hypothesizes that the loans to top Philippine industries by banks affect the fluctuations in economic indicators like the gross value added (GVA) and industry employment. Based on the empirical results of the study, this exploration supports the hypothesis for the GVA equation. Regressions for the main sample of nine industries and the agriculture, manufacturing and trade industries verify the positive relationship. Credits as additional funds produce favorable effects on investment in plant, equipment and technology, and hence, increase output. For the alternative measure employment however, loans do not have a significant effect on it.