Impact of Financial Development on Economic Growth in Developing Countries

This study provides significant new evidence on the relationship between financial development and economic growth in developing countries, using the generalized least squares (GLS) method for analysis. The research focuses on a sample of 30 developing countries worldwide, covering the period from 2010 to 2023. The study’s objective is to examine how financial development influences economic growth in developing economies, which face unique challenges compared to developed countries. The empirical results demonstrate that the development of the banking sector and private sector credit positively affect economic growth. In contrast, liquid liabilities have a negative impact, and stock market development shows no significant effect. Second, government expenditures and inflation rates negatively affect economic growth in these countries. Third, trade openness plays an important role in fostering economic growth in the sample of developing countries. These findings offer valuable policy implications for governments in developing countries to enhance economic growth. Increasing bank branches and private sector credit can improve access to capital and investment. However, fluctuations in liquidity debt negatively correlate with growth, emphasizing the need for cautious monetary policies, improved debt management, and economic diversification. Developing countries should also focus on enhancing transparency, strengthening regulatory frameworks, and adopting advanced technologies such as blockchain and artificial intelligence to improve market efficiency and attract foreign investment.