The Credit Market Linkage in The Financial Mediation and Economic Development Connectivity
DOI:
https://doi.org/10.37385/z103t291Keywords:
Dynamic Ordinary Least Squares, Economic Development, Financial Intermediation, Panel DataAbstract
This study examined the connectivity between financial mediation and economic development, with emphasis on the credit market in both developed and developing countries. The panel data of selected developed and developing countries over the period1993 to 2023 was used on some financial indicators such as broad money growth (BMG), domestic credit to the private sector (DCPS), and non-performing loans (BNPL) and real interest rate (RINT) in relation to human development (HDI) in a Dynamic Ordinary Least Squares (DOLS) estimator. The results revealed significant disparities between the two economic groups of developing and developed countries, with the developed countries exhibiting more stable financial structures and higher human development levels. BMG positively impacted HDI in developed economies, while for developing countries, it had a weak and negative impact in developing countries, indicating inefficiencies in financial systems of the developing countries. DCPS was also found to be negatively related with insignificant impact in developed countries, while it exerted a positive and significant impact in developing countries, supporting the Credit Market Imperfection Hypothesis. Thus, while financial intermediation plays important role in economic development, its impact varies across economic environments. The study therefore recommends among others for the strengthening of the financial market structures, enhancing credit accessibility, implementing institutional reforms, and adopting balanced monetary policies for the sustainable economic development.
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