Effects of Monetary Policy and Government Effectiveness on Economic Growth: Evidence from 49 Countries Worldwide

Dang Thi Thu Hang, Nguyen-Phuong Lien

Abstract

Increasing economic growth is always a big concern for all countries over the world. The paper applied the 2SLS model for the secondary panel data of 49 high-, middle-, and low-income countries for 20 years (2000 – 2019) to investigate the influence of monetary policy, government effectiveness, and other control proxies on economic growth. In this study, the authors measure the monetary policy by two variables, named “Interest expense” (IE) and “Compensation of employee expense” (CE). This research evaluates the government effectiveness by two factors, specifically “Tax revenue” (TR) and “Control of corruption” (CC). The research also uses two control variables: “Rural population” (RP) and “Trade openness” (TD). The findings confirm that monetary policy, trade openness, and control of corruption are three significantly beneficial factors that promote income per capita. However, rural population rate, and tax revenue are harmful factors for economic growth. Additionally, the GMM model also supports the same results as the 2SLS model. By investigating the monetary policy via interest and compensation of the employee expense and the role of the Government for economic growth, the study contributes to the monetary policy seen as follows. Firstly, this study confirms that monetary policy has the positive effects on economic growth. Secondly, this research also confirms that government effectiveness has complex impacts on an economy based on the type of measurement of government effectiveness.

 

Keywords: monetary policies, government effectiveness, trade openness, economic growth.

 

https://doi.org/10.55463/issn.1674-2974.49.8.6


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References


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