Evaluating The Long-Term Impact Of Fiscal And Monetary Policy Interventions On Economic Growth: A Comparative Analysis Of Emerging And Developed Economies

Dr. Rupinder Kaur Bhatti; Hingston Xavier; Dr. Dipankar Pradhan; Dr. Navleen Kaur; SAAD

doi:10.29284/dgk0vr93

Authors

Dr. Rupinder Kaur Bhatti Assistant Professor, Department of commerce and management, Specialization in commerce and management, M. l. M Technical College, Moga
Hingston Xavier Assistant Professor, Department of Basic Sciences and Humanities, Chirst College of Engineering, Irinjalakuda, Thrissur, Kerala, India
Dr. Dipankar Pradhan Assistant Professor, Faculty of Management and Commerce, The ICFAI University, Tripura, India
Dr. Navleen Kaur Professor, Department of Finance, Specialization in Finance, AIBF, Amity University, Noida, 201301, India
SAAD MBA, Business Analytics, Faculty of Business & Communications, Inti International University, Malaysia

DOI:

https://doi.org/10.29284/dgk0vr93

Keywords:

Fiscal policy, Monetary policy, Economic growth, Emerging economies, Developed economies, Institutional quality.

Abstract

This paper examines the impact of long-term fiscal and monetary policy interventions on economic growth by comparing emerging and developed economies. Instead of generating new econometric estimates, the research synthesises empirical results from recent literature in macroeconomics to identify consistent patterns, deviations, and mechanisms underlying long-run growth outcomes. The results indicate that fiscal policy is more prominent in the emerging economies, where productive public expenditure and countercyclical interventions can be used to generate growth in the long term, especially with the assistance of the growing quality of institutions and fiscal governance. In the developed economies, there are further limits to the growth impact of fiscal policy, in terms of the sustainability of debt and dwindling returns, and the focal point is on efficiency and policy coordination. The long-term growth is supported by monetary policy mainly through price stability and anchoring inflation expectations. Plausible and autonomous central banks contribute to higher investment and productivity by decreasing macroeconomic uncertainty, and the greater and more predictable the effects are in developed economies. In both sets of countries, the institutional quality, the policy credibility, and the cooperation between the fiscal and monetary policies are the vital aspects of determining the performance in terms of long-run growth. The paper emphasises the relevance of context-based macroeconomic policies and offers policy-related suggestions on how to design sustainable growth-oriented interventions.

References

1. Acevedo, R., Lorca-Susino, M., & Mora, J. U. (2024). The unfree, the freer, and the government: Economic freedom and the fiscal multiplier. Journal of Government and Economics, 13, 100098.

2. Afonso, A., & Carvalho, F. T. (2022). Time-varying cyclicality of fiscal policy: The case of the Euro area. The North American Journal of Economics and Finance, 62, 101778.

3. Afonso, A., & Leal, F. S. (2019). Fiscal multipliers in the Eurozone: an SVAR analysis. Applied Economics, 51(51), 5577-5593.

4. Ahuja, D., & Pandit, D. (2020). Public expenditure and economic growth: Evidence from the developing countries. FIIB Business Review, 9(3), 228-236.

5. Albonico, A., Ascari, G., & Gobbi, A. (2021). The public debt multiplier. Journal of Economic Dynamics and Control, 132, 104204.

6. Arizala, F., Gonzalez-Garcia, J., Tsangarides, C. G., & Yenice, M. (2021). The impact of fiscal consolidations on growth in sub-Saharan Africa. Empirical Economics, 61(1), 1-33.

7. Aursland, T. A., Frankovic, I., Kanik, B., & Saxegaard, M. (2020). State-dependent fiscal multipliers in NORA-A DSGE model for fiscal policy analysis in Norway. Economic Modelling, 93, 321-353.

8. Barnichon, R., Debortoli, D., & Matthes, C. (2022). Understanding the size of the government spending multiplier: It’s in the sign. The Review of Economic Studies, 89(1), 87-117.

9. Carvelli, G. (2023). The long-run effects of government expenditure on private investments: a panel CS-ARDL approach. Journal of Economics and Finance, 47(3), 620-645.

10. Choi, S., Furceri, D., Loungani, P., & Shim, M. (2022). Inflation anchoring and growth: The role of credit constraints. Journal of Economic Dynamics and Control, 134, 104279.

11. Ciaffi, G., Deleidi, M., & Mazzucato, M. (2024). Measuring the macroeconomic responses to public investment in innovation: evidence from OECD countries. Industrial and Corporate Change, 33(2), 363-382.

12. Geli, J. F., & Moura, A. S. (2023). Getting into the nitty-gritty of fiscal multipliers: small details, big impacts. International Monetary Fund.

13. Gómez-Puig, M., Sosvilla-Rivero, S., & Martínez-Zarzoso, I. (2022). On the heterogeneous link between public debt and economic growth. Journal of International Financial Markets, Institutions and Money, 77, 101528.

14. Hory, M. P. (2016). Fiscal multipliers in emerging market economies: can we learn something from advanced economies?. International Economics, 146, 59-84.

15. Levieuge, G., Lucotte, Y., & Ringuedé, S. (2018). Central bank credibility and the expectations channel: Evidence based on a new credibility index. Review of World Economics, 154(3), 493-535.

16. Petrović, P., Arsić, M., & Nojković, A. (2021). Increasing public investment can be an effective policy in bad times: Evidence from emerging EU economies. Economic modelling, 94, 580-597.

17. Rafique, R., Nisar, A., & Shah, S. S. A. (2024). Testing the effects of fiscal policy shocks on output growth in recession and expansion: empirical evidence from developing countries. Economic Change and Restructuring, 57(3), 129.

18. Ramey, V. A. (2019). Ten years after the financial crisis: What have we learned from the renaissance in fiscal research?. Journal of Economic Perspectives, 33(2), 89-114.

19. Rehman, N. U., Hysa, E., & Mao, X. (2020). Does public R&D complement or crowd-out private R&D in pre and post economic crisis of 2008?. Journal of Applied Economics, 23(1), 349-371.

20. Romelli, D. (2022). The political economy of reforms in Central Bank design: evidence from a new dataset. Economic Policy, 37(112), 641-688.

21. Uyarra, E., Zabala-Iturriagagoitia, J. M., Flanagan, K., & Magro, E. (2020). Public procurement, innovation and industrial policy: Rationales, roles, capabilities and implementation. Research Policy, 49(1), 103844.

22. Van Reenen, J. (2021). Innovation policy to restore American prosperity (No. 599). Centre for Economic Performance, LSE.

23. Yared, P. (2019). Rising government debt: Causes and solutions for a decades-old trend. Journal of Economic Perspectives, 33(2), 115-140.

24. Younsi, M., & Nafla, A. (2019). Financial stability, monetary policy, and economic growth: Panel data evidence from developed and developing countries. Journal of the Knowledge Economy, 10(1), 238-260.