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The impact of financial development on economic indicators: a dynamic panel data analysis

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  • Jun Wen
  • Hamid Mahmood
  • Samia Khalid
  • Muhammad Zakaria

Abstract

The study investigates the effect of financial development on major economic indicators, i.e., economic growth, inflation, and employment by applying System GMM estimation technique for a panel of 120 countries for the period 1997 to 2017. Four distinct proxies of financial development are used, i.e., private sector credit, liquid liabilities, money and quasi money, and bank credit. The results contradict the traditional supply-lending hypothesis and reveal negative impact of financial development on economic growth. Moreover, financial development is found to be positively associated with inflation and employment growth. It is suggested that there is need to reform and strengthen the supervision of financial intermediaries to ensure sound prudential lending practices. Furthermore, more credit needs to be allocated to highly productive firms.

Suggested Citation

  • Jun Wen & Hamid Mahmood & Samia Khalid & Muhammad Zakaria, 2022. "The impact of financial development on economic indicators: a dynamic panel data analysis," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 2930-2942, December.
    • Handle: RePEc:taf:reroxx:v:35:y:2022:i:1:p:2930-2942
    DOI: 10.1080/1331677X.2021.1985570
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    Cited by:

    1. Changjun Zheng & Sinamenye Jean-Petit, 2023. "The Effects of the Interactions Between Agro-Production, Economic, and Financial Development on Bank Sustainability," SAGE Open, , vol. 13(2), pages 21582440231, June.
    2. Hamdi Becha & Maha Kalai & Kamel Helali, 2023. "Smooth transition regression model relating inflation to economic growth in Tunisia," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 12(1), pages 1-26, December.
    3. Xianghua Yuan & Muntasir Murshed & Samiha Khan, 2023. "Does the depth of the Financial Markets matter for establishing Green Growth? Assessing Financial sector’s potency in decoupling Economic Growth and Environmental Pollution," Evaluation Review, , vol. 47(6), pages 1135-1167, December.

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