The Credit Market Linkage in the Financial Mediation and Economic Development Connectivity
Abstract
This study examined the Relationship between financial mediation and economic development, with a focus on the credit market in both developed and developing countries. The panel data of selected developed and developing countries over the period 1993 to 2023 were used on some financial indicators such as broad money growth (BMG), domestic credit to the private sector (DCPS), Bank non-performing loans (BNPL), and real interest rate (RINT) in relation to human development (HDI) in a Dynamic Ordinary Least Squares (DOLS) and the System GMM estimators. The results revealed significant disparities between the two economic groups, developing and developed countries. The developed countries exhibited more stable financial structures and higher human development levels. BMG harmed HDI in developed economies, while it had a substantial positive impact in developing countries. DCPS was found to be positive but had an insignificant effect in developed countries, but a positive, significant impact in developing countries, supporting the Credit Market Imperfection Hypothesis. Thus, while financial intermediation plays an essential role in economic development, its impact varies across economic environments. The study therefore recommends, among others, the strengthening of the financial market structures, enhancing credit accessibility, implementing institutional reforms, and adopting balanced monetary policies for sustainable economic development.
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