The impact of credit financing to the private sector on sustainable economic growth

Abstract

This study explores the relationship between financial sector development and sustainable economic growth, emphasizing the pivotal role of credit in promoting innovation, competitiveness, and structural transformation. Using international data from 1960–2024, the research examines the dynamics of the indicator Monetary sector credit to the private sector (% of GDP) across regions and income levels, revealing significant disparities between developed and developing economies. The empirical results confirm a strong positive correlation (r = 0.75) between the depth of financial intermediation and the level of economic development, suggesting that countries with more advanced financial systems achieve higher capital accumulation and productivity. The analysis highlights that responsible and well-regulated credit expansion supports sustainable growth by financing green technologies, enhancing agricultural and industrial productivity, and fostering financial inclusion. However, excessive credit growth can increase macroeconomic vulnerability and systemic risks. The findings underline the necessity of policies that promote sustainable credit practices, improve financial literacy, and encourage investments in innovation and environmental efficiency. Future research should further investigate the optimal credit expansion threshold and assess the impact of green financing instruments such as sustainability-linked loans and ESG-based bonds on long-term economic competitiveness and resilience.