Examining the Impact of Monetary Policies and Good Governance on Financial Development in Selected Developed and Developing Countries

In today’s complex and dynamic world, the financial system plays a crucial role in the stability and growth of the real economy globally. Understanding the interplay between macroeconomic policies and financial–trade development is of vital importance. This study aims to simultaneously examine the effects of macroeconomic, financial, monetary, and institutional variables on domestic credit to the private sector and the volume of foreign trade (exports and imports), analyzing these complex relationships. To achieve this objective, panel data from 14 selected countries over the period 2012–2022 were analyzed using the fixed-effects method. This approach was chosen for its ability to control for heterogeneous and time-invariant characteristics of the countries, such as cultural differences or legal structures. The findings indicate that, in the financial development model, corruption control has the strongest positive effect on domestic credit to the private sector, with a coefficient of 0.39 (significant at 5%), while economic growth has the largest negative effect, with a coefficient of -0.46 (significant at 2.79%). In the trade development model, economic growth is identified as the most important factor enhancing foreign trade, with a positive coefficient of 0.35 (significant at 2.38%), whereas broad money has the strongest negative effect, with a coefficient of -0.48 (significant at 5%). Overall, the results suggest that both financial and trade development critically depend on governance quality, institutional transparency, and the effectiveness of monetary policies. Particularly for developing countries, the synergy between institutional reforms and rule-based monetary policies is a fundamental prerequisite for strengthening financial stability and improving their position within the global value chain.