Role of Globalization and Innovation Pattern in Growth of Bank Credit: Evidence From Emerging and Advanced Asia

ABSTRACT This study examines the role of globalization and innovation pattern (i.e., innovation by the residents and non‐residents) in the growth of domestic bank credit across emerging and advanced Asian economies spanning from 1996 to 2022. The bank credit growth model includes economic growth and real interest rate as important control variables. This study employs Cross Sectional‐Autoregressive Distributed Lag (CS‐ARDL) as an appropriate baseline method because of the cointegration, endogeneity, and cross‐sectional dependency present in the data. The long‐run results for emerging Asian economies indicate that globalization exhibits a negative impact on banking credit, contrasting with the positive influence observed in advanced Asian economies due to heightened economic growth and increased credit demand. Residential innovation consistently bolsters banking credit in both sets of economies, albeit with mixed effects stemming from non‐resident innovation. The long‐run results further indicate the positive (negative) impact of economic growth (real interest rate) on bank credit in emerging and advanced Asian economies. These findings are reliable due to the similar results obtained from using Driscoll‐Kraay Robust Standard Errors (DKSEs) as robust method. For policymakers in emerging economies, the imperative policy lies in striking a delicate balance between economic openness and bank credit, while counterparts in advanced economies are poised to bolster bank credit accessibility through foreign innovation while upholding stringent regulatory oversight.