Abstract
Acceleration of economic growth, especially in modern conditions, requires the use of stimulating measures of fiscal and monetary policy. Measures to stimulate economic growth should also maintain macroeconomic stability. Many emerging markets and developing economies are pursuing high interest rate policies to curb inflation, but this leads to a reduction in lending to non-financial corporations and to economic growth rates decline. The goal of the study is to show that pursuing high interest rates policy is insufficient. We tested several hypotheses: first, we assume that an increase in lending to non-financial corporations stimulates economic growth. Our second hypothesis, in contrast, suggests that increasing interest rates on loans dampen economic growth. Third, we assume that inflation has no significant effect on economic growth. Forth, we consider that lending to non-financial corporations does not spur inflation. We empirically assess the data for 13 countries related to emerging markets during 2001–2020. The results of the research confirmed all the hypotheses. The monetary policy of maintaining high interest rates used by many developing countries leads to low lending to non-financial corporations and reduced economic growth. We propose several policy implications aimed at stimulating the lending to non-financial corporations and scarce inflation.
Highlights
Accelerating economic growth is a major challenge for modern markets
We check for the multicollinearity implementing correlation matrix (Table 6), which shows that the correlation coefficients between variables do not exceed 0.5, indicating that there is no strong correlation between variables and variance inflation factor (Table 7)
Based on the results of econometric modelling, we conclude that credit to non-financial corporations has a significant and positive impact on economic growth, lending interest rate has a significant and negative impact on the economic growth, and the overall level of inflation is measured as GDP deflator does not have a significant impact on economic growth
Summary
Accelerating economic growth is a major challenge for modern markets. Developed countries use monetary instruments extensively to boost economic growth, such as keeping interest rates on loans at a low level (close to zero). Most countries related to emerging markets and developing economies adhere to high interest rate policies, which are justified by the goal of reducing inflation. The purpose of the study is to show that the policy of high interest rates is insufficient for developing economies. For this purpose, we tested four hypotheses. The estimation results show that the pursued monetary policy aimed at maintaining high interest rates, which is common for most emerging and developing countries, reduces the lending to non-financial corporations and results in the stagnation of the economic growth. We propose several policy implications to stimulate lending to non-financial corporations and decrease the inflation
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