Revisit the role of financial development on economic growth, human development, and sustainable development in...

As the global agenda shifts toward sustainability, understanding the nuanced relationship between finance and long-term development goals is crucial, especially in countries with complex financial architectures. This study examines the role of financial development in influencing three key development indicators: economic growth (GDP per capita), the Sustainable Development Index (SDI), and the Human Development Index (HDI) across 77 high-income countries. The Panel Quantile Regression (PQR) approach is employed to capture potential non-linear effects across the distribution of the dependent variables, while the robustness of the results is validated using the Instrumental Variable Panel Quantile Regression (IV-PQR) technique to address potential endogeneity concerns. The analysis reveals an inverted U-shaped relationship between financial development and development indicators, including GDP per capita, SDI, and HDI. It shows that initial financial development fosters all types of development indicators; its benefits diminish and eventually decline beyond a certain threshold. The further linearized marginal effect reveals that a few selected countries are positioned on the left side of the curve, indicating that financial development enhances both economic and human development. However, many countries are positioned on the right side of the curve regarding financial development and SDI, suggesting that excessive financialization contributes to environmental degradation and hampers progress toward sustainability goals. This study emphasizes that higher financialization is not always a better choice, particularly when financial systems outpace regulatory capacity in supporting the real economy. Policy recommendations include promoting balanced financial development, strengthening financial regulations, integrating sustainability into financial systems, and aligning financial policies with Sustainable Development Goals (SDGs). The findings underscore the essential for a cautious approach to fiscal deepening, ensuring that it supports long-term, inclusive, and sustainable development.