Role of monetary policy in economic growth and development: from theory to empirical evidence

Abstract

Purpose-This article examines the effects of credit to private sector on the business and trade activities. The effectiveness of rapid expansion in public and private borrowing through state's intervention after COVID-19 pandemic has been assessed in this study. Design/methodology/approach-The model to determine the role of credit expansion is based on four equations estimated through panel least square technique on 18 years data of 186 countries. Findings-It is concluded that credit to private sector and external debt improve the investment in infrastructure, which is a significant determinant of gross domestic product growth. Empirical evidences corroborate that higher number of firms using banks to finance their investment and the volume of broad money determine the magnitude of credit to private sector. Originality/value-This study explores some new evidences and aspects of the credit financing which have not been discussed in this way before.