What is the Relationship Between Financial Stability and Economic Growth in APEC?

Abstract

This study explores the correlation between economic growth and financial stability among upper-middle-income countries in APEC, such as Indonesia, China, Malaysia, Mexico, Peru, Russia, and Thailand from 2013 to 2023. It employs a simultaneous equation approach. The motivation for this research lies in securing the well-being of future generations, as effectively managing current economic growth and financial stability will foster investment in future welfare. This lays the groundwork for sustainable and inclusive economic progress over time. Key findings indicate a mutually beneficial relationship between financial stability and economic growth. The study underscores the importance of bolstering financial stability through measures like increasing capital adequacy ratios and credit private sector, while also managing credit card usage and interest rates. Moreover, it suggests that fostering economic growth requires enhancing credit private sector, alongside managing interest rates, unemployment, and poverty. The study recommends that governments of upper-middle-income APEC countries implement macroprudential policies effectively. This strategic approach aims to uphold both financial stability and interconnected economic growth, thereby mitigating systemic risks that could otherwise harm the economy.