Role of financial development for sustainable economic development in low middle income countries

Abstract

This paper investigates the impact of financial development on sustainable economic development (SED) in low-middle-income countries. It adopts an unbalanced panel data approach on 50 low-and middle-income countries over the period of 1991–2020. We apply Fixed Effects (FE), the Feasible Generalized Least Squares (FGLS) and Bootstrap Panel Quantile Regression to analyze the results. We find that sustainable economic development is positively affected by financial development, natural resource abundance, international tourism, trade openness and foreign direct investment. Additionally, financial development plays a positive moderating role through natural resource abundance. Foreign direct investment (FDI) also enjoys a positive moderating role through international tourism. The Bootstrap Quantile outcomes point out the diversified effects of the addressed variables at different quantiles. Accordingly, it is crucial to consider financial development alongside socioeconomic variables such as trade openness, aging population and FDI to identify and address sustainable economic development issues.