The nexus of financial development, employment, and economic growth in selected developing countries

Financial development plays a significant role in economic growth, specifically for developing countries. As evidenced by their lower Financial Development Index (FDI) compared to developed countries, developing countries face significant challenges because of their less developed financial systems. This study extends existing research by incorporating minimum wage as a moderating factor in the finance-employment-growth nexus, an area that remains underexplored in developing countries. However, the complex relationship between financial development, economic growth, employment dynamics, and minimum wage regulations highlight the nuanced effect of financial development on growth while also revealing the varied impacts of minimum wage policies on both employment and economic growth. Thus, this study extends existing research by incorporating minimum wage as a moderating factor in the finance-employment-growth nexus, as an are that remains underexplored in the developing countries. Hence, it is crucial to understand this intricate relationship to formulate more effective policies that aim to promote sustainable development and inclusive growth. This leads to three main objectives, which are to examine the impact of financial development on economic growth, to investigate whether employment moderates the effect of the financial development on economic growth and to investigate whether minimum wage moderates the effect of employment on the financial development economic growth nexus in developing countries. The study employed the Generalised Method of Moments (GMM) for the model estimation, while domestic credit to the private sector (DCPS) and broad money (M3) was used as a proxy for financial development. This research analysis used a panel data set of 96 developing countries spanning from 2000 to 2022 obtained from the World Development Indicators provided by the World Bank. This finding of research shows the importance of financial development for the economic growth of developing countries. Evidence suggests that functioning financial systems contribute tremendously to economic performance and job creation. Financial development, on the one hand, creates direct growth opportunities and increased employment opportunities through stimulating the economy. Surprisingly, another interesting aspect is how minimum wage regulation is enforced. The findings suggest that when enforcement is even-handed, meaning not too weak or too strict, it positively enhances the impact from financial development. Such insights can furnish working-level policymakers with excellent guidance for building inclusive and sustainable economic strategies for developing countries.