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Financial stability and sustainable development: Perspectives from fiscal and

monetary policy

Article · May 2024

DOI: 10.1002/ijfe.2981

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Received: 21 April 2023 Revised: 9 January 2024 Accepted: 15 April 2024
DOI: 10.1002/ijfe.2981

RESEARCH ARTICLE

Financial stability and sustainable development:

Perspectives from fiscal and monetary policy

Le Quoc Dinh 1 | Tran Thi Kim Oanh 2 | Nguyen Thi Hong Ha 3

1
University of Finance – Marketing, Ho
Chi Minh City, Vietnam Abstract
2
Faculty of Finance and Banking, This paper studies the relationship between financial stability and sustainable
University of Finance – Marketing, Ho development from the fiscal and monetary policy perspective in 33 developing
Chi Minh City, Vietnam
countries and 7 developed countries in the period 2005–2020. Bayesian regres-
3
Faculty of Accounting, Finance –
Banking, Ho Chi Minh City Industry and
sion results show that financial stability positively affects sustainable develop-
Trade College, Ho Chi Minh City, ment in both groups of countries with a low probability of impact. This
Vietnam probability is above 79.3% in developed countries and above 81.5% in develop-
Correspondence ing ones. When considering the role of monetary policy, the direction of
Tran Thi Kim Oanh, Faculty of Finance impact and probability is different. Specifically, financial stability in the envi-
and Banking, University of Finance –
ronment of high inflation and increased money supply (ZscoreInf and
Marketing, Ho Chi Minh City, Vietnam.
Email: kimoanh@ufm.edu.vn ZscoreM2) negatively affects sustainable development in both country groups
with high probabilities. In contrast, when considering the monetary policy
with the foreign exchange reserves tool (ZscoreER), financial stability posi-
tively impacts sustainable development with the probability of 89.6% in devel-
oped countries and 92.5% in developing one. When considering the role of
fiscal policy, financial stability with government spending (ZscoreGE) posi-
tively affects sustainable development with a probability of over 99.7% in the
two groups of countries. Meanwhile, tax income in a financially stable envi-
ronment increases the probability of a positive effect at 100% in developed
countries, and a negative effect with a probability of 60.9% in developing coun-
tries. From the above results, we propose that central banks in both developed
and developing countries should aim to stabilize prices and aim to maintain a
low inflation rate to help limit shocks to sudden interest rate changes that
cause market volatility. This is a premise to help stabilize finance and promote
sustainable development. Furthermore, these countries should maintain an
adequate foreign exchange reserve to withstand external shocks and ensure
they have enough foreign currency to meet macroeconomic needs, which can
boost confidence.

KEYWORDS
Bayesian regression, developed and developing countries, financial stability, fiscal policy,
monetary policy, sustainable development

Int J Fin Econ. 2024;1–18. wileyonlinelibrary.com/journal/ijfe © 2024 John Wiley & Sons Ltd. 1
2 DINH ET AL.

1 | INTRODUCTION that financial stability is closely related to the sustain-

able development of a country. According to Anato-
In July 1944, under the leadership of economists John lyevna and Ramilevna (2013), financial stability reflects
Maynard Keynes and Harry Dexter White, the Interna- the health of the financial system (financial markets,
tional Monetary Fund (IMF) was established to promote financial intermediaries and financial market infrastruc-
financial stability and prevent the recurrence of crises. At ture) that can withstand financial shocks disrupting the
the same time, the Bretton Woods system was introduced distribution of savings for profitable investment oppor-
that pegged all currencies to the US dollar, and the dollar tunities. Thus, the above definition shows that financial
was pegged to gold to prevent speculation against a fixed stability emphasizes the resilience of financial interme-
exchange rate (Eckes Jr, 2012). However, the gold stan- diaries to shocks and the ability to continue to effec-
dard was also terminated by President Nixon in 1971 and tively perform their basic function of mediating savings
replaced by the official Dollar Index (DXY) launched in and investment in the economy. Figure 1 shows that
1973 by the US Federal Reserve (FED) with the aim of financial stability impacts sustainable development
tracking the value of the US dollar. Since then, humanity through three channels: economic growth (Nasreen &
has witnessed many great changes in the economy and Anwar, 2018), environmental sustainability (Safi
politics such as the Asian financial crisis (1997), the dot- et al., 2021) and social sustainability (Magwedere &
com bubble crisis (2000), the global financial crisis Marozva, 2022). However, this system does not operate
(2008), the Covid-19 pandemic (2019), the on its own but needs a driving force from government
Russia–Ukraine conflict (2022). These crises and conflicts regulation through monetary and fiscal policy. In the
have had a negative impact, sending the world economy study by Oanh and colleagues (2023), it was affirmed
into a prolonged recession. Besides, the world is also fac- that monetary policy is crucial for financial stability—
ing problems of global instability such as environmental on one hand, it restrains inflation, on the other hand, it
pollution, resource depletion, climate change, energy serves as a stimulus for regional production develop-
security and food security (Santhakumari & Sagar, 2020). ment, benefiting financial stability. Fiscal policy can
As economic growth is reaching levels that cause more help improve or restrain the impact of financial stability
destruction than real wealth creation, the world is find- through the allocation of public resources to social and
ing new paths towards a sustainable economy that environmental issues, aiming towards sustainable devel-
accomplishes three goals simultaneously: economic sus- opment (Postula & Radecka-Moroz, 2020). Therefore,
tainability, social sustainability, and environmental the impact of financial stability on sustainable develop-
sustainability (ESCAP & Scientific, 2015). ment cannot be overlooked without considering the role
In addition, many studies in the 1970s show that the of monetary and fiscal policy. However, previous studies
pursuit of economic growth leads to environmental deg- such as Ozili and Iorember (2023); Dumiči
c (2019) only
radation, resource depletion and social inequality focused on individual issues.
(Go
mez-Baggethun & Naredo, 2015). This period marked Following Agenda-2030, the relations related to sus-
a turning point when a series of critiques of traditional tainable development are now of strong interest to sci-
economic growth methods were published such as entists. Ozili and Iorember (2023) applies the GMM
Georgescu-Roegen (1971), Haddon Jr (1971), Claiborne method to study the relationship between financial sta-
(1972), and Daly (1973), and the general conclusion of bility and sustainable development in 26 countries in
these studies is that continuous economic development is the period 2011–2018. Chuba and Yusuf (2022) study
not possible in a finite planet. This has led to calls for a the impact of monetary policy on sustainable develop-
new approach to development that balances economic ment in Nigeria in the period 1991–2020 using the OLS
growth with social and environmental sustainability. In model. Previous financial stability studies such as
1987, the United Nations Brundtland Commission first Dumiči
c (2019) and Oldani and Savona (2005) investi-
defined sustainable development as the performance of gate the effects of fiscal policy on financial stability by
meeting the needs of the present generation without providing related theories. Oprea et al. (2013) and Popa
compromising the ability of the next generation to meet and Codreanu (2010) examine the impact of fiscal policy
their own needs. Sustainable development involves three on financial stability in Romania in the period 1990–
aspects of economy, society and environment. These 2011 and 2000–2009. Chukwudi and Henry (2020)
three aspects are interdependent and must be balanced to applies the ECM model to assess the impact of monetary
achieve sustainable development (Hammer & Pivo, 2016; policy on the financial stability of banks in Nigeria from
Nogueira et al., 2022). Q1/2008 to Q2/2016.
Recent studies such as Saïdane and Abdallah (2020), It can be seen that most of the previous studies
Ozili and Iorember (2023) and Ziolo (2020) point out have studied the individual relationship between
DINH ET AL. 3

F I G U R E 1 The relationship
between monetary policy, fiscal policy,
financial stability and sustainable
development. [Colour figure can be
viewed at wileyonlinelibrary.com]

sustainable development and financial stability. 2 | L I T E R A T UR E R E V I E W

While this relationship is always influenced by mon-
etary and fiscal policy. Furthermore, the studies 2.1 | The relationship between
mentioned above all utilize models based on tradi- sustainable development and financial
tional frequency methods. However, testing hypothe- stability
ses using this approach often relies on numerous
assumptions that may not align with reality, making Figure 1 shows that financial stability promotes sustain-
it less accurate in inference and forecasting. More- able growth through three dimensions: economic
over, frequentist statistical methods treat parameters sustainability, environmental sustainability and social
as fixed but unknown values, whereas these sustainability. Specifically:
parameters may change as the sample size is First, financial stability contributes to sustainable
updated over time. In contrast, Bayesian methods development through economic sustainability
treat parameters as random variables and assign (IMF, 2018). Financial stability can help ensure that capi-
them distributions to represent the confidence in tal flows efficiently from savings to investment while pre-
these parameters. In this study, we employ Bayesian venting the misallocation of resources that can lead to
methods with the aim of identifying trends in the economic instability and mitigate the risks associated
impact of financial stability on sustainable develop- with unsustainable economic activities, such as mounting
ment, considering the roles of monetary and fiscal debt, speculative bubbles, and financial crises
policies. Additionally, we seek to determine the (Corbo, 2010). In contrast, a sustainable economy can
probability of the influence of each interacting vari- help markets recover and respond better to financial
able on sustainable development. As a result, the shocks (Inquiry, 2016).
author proposes policy implications that guide Second, financial stability contributes to sustainable
nations towards sustainable development. development through environmental sustainability by
4 DINH ET AL.

facilitating investments in infrastructure, technology and leading to reduced purchasing power and increased cost
the use of managing risks related to the environment of living, causing instability in financial markets.
(Kirikkaleli et al., 2022). Conversely, a sustainable envi- Businesses may prioritize short-term profits rather than
ronment can help to reduce the risks associated with long-term sustainability, leading to behaviours such as
unsustainable economic activities and have a negative excessive use of natural resources and environmental pol-
impact on financial stability (Pattberg, 2005). For exam- lution (Gordon, 1984). The combination of inflation con-
ple, climate-related risks such as extreme weather events, trol tools such as interest rates (IRs), money supply and
floods, tides and changes in environmental policy can foreign exchange reserves in a given financial stability
affect the value of financial assets and investments as will promote sustainable development. Specifically:
well as disrupt supply chains and business operations. Monetary policy can maintain financial stability and
Thus, financial stability and environmental sustainability sustainable development by using interest rate tools to
reinforce each other and are necessary for sustainable control credit growth (Driffill et al., 2006). According
development. to Romer and Romer (2010), high-IRs help control infla-
Third, financial stability contributes to sustainable tion and promote financial stability by reducing excessive
development through a sustainable society by promoting borrowing and lending that can lead to financial bubbles
economic growth and creating more jobs. In particular, a and market instability. This creates a stable environment
stable financial system can provide financial access to for investment, economic growth and sustainable devel-
individuals and businesses, allowing them to invest in opment. However, high-IRs can also lead to reduced
education, health and other social goods (Aduda & investment, reduced economic growth and social unrest,
Kalunda, 2012). In turn, this can lead to improvements in especially in developing countries. This can hinder sus-
social indicators such as literacy rates, life expectancy, tainable development, especially in the short term
increased employment rates, increased high-quality (Dept, 2019).
human capital and poverty reduction. In contrast, a sus- Monetary policy can maintain financial stability and
tainable society can promote financial stability by creat- sustainable development by controlling the money supply
ing social cohesion and equity, leading to less social in the economy (Havi & Enu, 2015). According to World
unrest and political instability (Malik et al., 2022). Politi- Bank (2019), an increase in the money supply can pro-
cal instability can lead to capital flight and loss of inves- mote economic growth, investment and job creation.
tor confidence, which can destabilize financial markets. These are very important contents for sustainable devel-
In 2015, the United Nations approved the Sustainable opment. In addition, a well-managed money supply can
Development Goals (SDGs), through the above 3 relation- promote financial stability by ensuring that there is suffi-
ships to form a set of 17 integrated goals as a scale for cient liquidity in the financial system. On the other hand,
sustainable development (Oanh, 2023) and approved by an excessive increase in the money supply can lead to
the European Joint Research Center (European inflation, which erodes the value of the currency and
Commission et al., 2019; Schmidt-Traub et al., 2017). leads to a decrease in purchasing power. This can
Since then, the relationship between sustainable develop- increase the cost of living and create instability in finan-
ment and financial stability has been a main topic of cial markets, hindering sustainable development
many studies such as Ozili and Iorember (2023), Saïdane (Blanchard & Fischer, 1989). Therefore, achieving sus-
and Abdallah (2020), Ziolo (2020), Ziolo et al. (2018). tainable development requires a balance between money
However, this relationship cannot function well without supply, financial stability and long-term sustainability. It
the ‘hands’ of the government through monetary and fis- requires policies that promote macroeconomic stability,
cal policy. but also consider social and environmental aspects.
Monetary policy can maintain financial stability and
sustainable development through foreign exchange
2.2 | The role of monetary policy in the reserves (Olaloye & Ikhide, 1995). Foreign
relationship between sustainable exchange reserves can help prevent or mitigate financial
development and financial stability crises by providing a buffer against external shocks and
improving confidence in the financial system
Monetary policy is the set of actions taken by a country's (IMF, 2018). This can lead to increased investment, job
central bank to manage that country's economy. The creation and economic growth, all of which are crucial
main objective of monetary policy is to maintain price for sustainable development. The level of foreign
stability, that is, to control inflation (Cecchetti, 2000; exchange reserves can impact financial stability by affect-
Friedman, 1995; Meyer, 1997; Walsh, 1995). According to ing a country's ability to manage external imbalances and
Hudson (2006), high inflation erodes the value of money, avoid financial crises (Borio & Disyatat, 2010). For
DINH ET AL. 5

example, if a country experiences sudden capital outflow It can be seen that sustainable development and
or a balance of payments crisis, it may have to withdraw financial stability have a close relationship with each
its foreign exchange reserves to maintain the stability of other. However, the extent of this relationship depends
its monetary and financial system. On the other hand, on monetary and fiscal policy in the national regions.
foreign exchange reserves affect sustainable development This study examines the relationship between financial
through the allocation of resources within a country stability and sustainable development from the perspec-
(Khan & Anwar, 2022; Sitek, 2021). When a tive of fiscal and monetary policy in two groups of devel-
country accumulates large foreign exchange reserves, it oped and developing countries.
can divert resources away from productive investments
in areas such as education, health care and infrastruc-
ture, thereby limiting a country's ability to countries 2.4 | Review of previous studies
invest in long-term growth and social welfare
(Secretariat, 2019). Recently, the topic of the impact of financial stability on
sustainable development has attracted the attention of
scientists. Ozili and Iorember (2023) examine the impact
2.3 | The role of fiscal policy in the of financial stability on sustainable development in
relationship between sustainable 26 countries between 2011 and 2018 using the GMM
development and financial stability method. The findings of the sustainability index analysis
show that financial stability has a significant influence
Fiscal policy refers to two main tools, public spending on the level of sustainable development and a negative
and taxation, which play an important role in the rela- effect in Asian countries. The results also show that
tionship between sustainable development and financial European and Asian countries have a high sustainability
stability (Chakraborty, 2022; Dumiči
c, 2019; Oldani & index compared with African countries. Safi et al. (2021)
Savona, 2005; Oprea et al., 2013). raised the question of whether financial stability and
Fiscal policy can affect financial stability and sustain- renewable energy promote environmental sustainability
able development through the allocation of public in the G-7 countries. Using data collected from 1990 to
resources to social and environmental issues (Postula & 2018, the analysis provides empirical evidence of the link
Radecka-Moroz, 2020). Government spending on educa- between financial stability, renewable energy, interna-
tion, health and infrastructure can contribute to long- tional trade, national income and carbon emissions with
term growth and development (Martin & Walker, 2015). structural breaks. The findings show that in both long-
At the same time, fiscal policy can also promote sustain- term and short-term financial stability, exports and
able development by encouraging private investment in renewables significantly reduce carbon emissions, which
clean energy, sustainable agriculture and other environ- in turn promotes sustainable development. Wahab et al.
mentally friendly sectors (Postula & Radecka- (2022) assessed the effect of financial stability on carbon
Moroz, 2020). emissions for BRICS countries given the presence of
Government taxes contribute to financial stability by renewable energy, technological innovation, industry
providing the government with the resources it needs to value and international trade in the region for the period
deal with an economic crisis (Ozili, 2020). During an eco- from 1995 to 2018. Findings suggest that financial stabil-
nomic downturn, the government can use tax revenues ity, technological innovation, economic growth and
(TRs) to implement fiscal stimulus measures, such as imports contribute to consumption-based carbon emis-
increasing government spending or cutting taxes, to sta- sions, while renewable energy and exports negatively
bilize the economy and prevent a prolonged recession. affect consumption-based carbon emissions. Saïdane and
Taxes can also be used as a tool to promote sustainability Abdallah (2020) studied the relationship between the sus-
by encouraging individuals and corporations to engage in tainability and stability of 61 European banks from 2005
environmentally friendly behaviours (Nellen & to 2017 using PVAR and GMM methods. The results
Miles, 2007). For example, a tax on carbon emissions can show the existence of a two-way causality between sus-
incentivize individuals and businesses to reduce their car- tainability and financial stability. This means sustainabil-
bon footprint, promote sustainable development, and ity and all its different aspects (environmental, social and
mitigate climate change. Furthermore, a sound tax policy governance) have a positive and significant impact on the
reduces income inequality through the redistribution of stability of the bank, while the stability of the banks neg-
income from TRs (Engel et al., 1999), thereby helping to atively affects sustainability and governance and environ-
sustain society and increase sustainable development mental aspects. Recently, Wu et al. (2023) employed a
(De Paepe & Dickinson, 2014). dynamic panel model and mediating effects model to
6 DINH ET AL.

investigate the impact of digital economy's development relationship between financial stability and sustainable
on air pollution in 274 Chinese cities from 2011 to 2019. development in 26 countries in the period 2011–2018.
One of the outcomes is that the development of the digi- Chuba and Yusuf (2022) applied the OLS model to study
tal economy has led to a decrease in air pollution emis- the impact of monetary policy on sustainable develop-
sions in Chinese cities, with the elasticity of pollution ment in Nigeria in the period 1991–2020. Previous studies
reduction being higher in Central and Western China on financial stability such as Dumiči
c (2019) and Oldani
compared with Eastern China. Accordingly, some policy and Savona (2005) examined the effects of fiscal policy on
implications are put forward for simultaneously promot- financial stability by providing relevant theories. Oprea
ing the development of the digital economy and reducing et al. (2013) and Popa and Codreanu (2010) qualitatively
air pollution, impelling industrial agglomeration and analysed the impact of fiscal policy on financial stability
accelerating the green transformation in China. in Romania in the period 1990–2011 and 2000–2009.
Balsalobre-Lorente et al. (2023) conducted research on Chukwudi and Henry (2020) used the ECM model to
the impact of environmental issues on globalization in assess the impact of monetary policy on the financial sta-
two major regions within the emerging economies of bility of banks in Nigeria from Q1/2008 to Q2/2016. It
Central and Eastern Europe. This paper applied FMOLS can be learned from the review that the research scope of
and DOLS econometric techniques to provide an these articles is only within the country or region, and
N-shaped connection between economic complexity and the research method is usually used the frequency econo-
carbon emissions. The results indicate that if the share of metric method. However, the testing of hypotheses by
renewable energy sources increases by 1%, carbon emis- these approaches must be based on many assumptions
sions will decrease by 0.3475%. that are inconsistent with reality, making it inaccurate in
In addition, research trends on the impact of mone- inference and prediction. Many studies have analysed the
tary and fiscal policy on sustainable development are also strengths and challenges of the Bayesian method
of interest to researchers. Chakraborty (2022) studied fis- (Gelman & Hill, 2006; Kruschke, 2014), but the most sig-
cal policy for sustainable development in Asia–Pacific; nificant advantage of this method is that the accuracy of
Olaloye and Ikhide (1995) studied the sustainability of the model does not depend too much on the sample size.
the economy and the role of fiscal and monetary policies In addition, the Bayesian method also overcomes model
in a recessionary economy in Nigeria. Postula and defects such as autocorrelation, heteroscedasticity and
Radecka-Moroz (2020) researched the issue of fiscal pol- endogeneity (Thach, 2020). Therefore, this study will use
icy tools in environmental protection to promote sustain- the Bayesian approach to address the problem of scope
able development. Nellen and Miles (2007) explored the research in developed and developing countries.
impact of tax policy on the sustainable development of Based on the above research gaps, our research
countries. addresses the following issues:
Moreover, other studies focused on assessing the
simultaneous impact of monetary policy and fiscal policy 1. In terms of research: combining the linkage between
on economic growth such as Abdullahi and Omeiza financial stability, monetary and fiscal policies to con-
(2019), Adefeso and Mobolaji (2010), Hasan et al. (2016), sider the dynamics of sustainable development.
Havi and Enu (2015), Kareem et al. (2013). However, 2. Scope: the study was carried out on two groups of
after Agenda-2030, relevant factors that have an impact developed and developing countries.
on sustainable development are of interest to scientists, 3. Methodology: Bayesian approach is considered to be a
while previous studies have only focused on the degree of more efficient alternative than the methods of the
impact on economic development without taking into works used.
account environmental and social issues.
It can be seen that previous studies have focused on
the individual impact of fiscal policy and monetary policy 3 | METHODOLOG Y
on sustainable development; or the impact of financial
stability on sustainable development. While this relation- 3.1 | Research variables
ship is always influenced by monetary and fiscal policies.
Therefore, this study examines the relationship between 3.1.1 | Financial stability: Z-score
financial stability and sustainable development under the
role of monetary policy and fiscal policy. Z-score is used to represent financial stability and is cal-
In terms of research methods, studies on this topic culated using the formula: Z-score = (ROA+EA)/
have been approached in different ways. Ozili and Iorem- (σ(ROA)), where EA is equity/total assets. Z-score has
ber (2023) used the GMM method to study the been used in previous studies such as Amatus and
DINH ET AL. 7

TABLE 1 Description of variables in the model.

Variable Sign Measure Research Source

Dependent variable
Sustainable SDGI Integrate 17 indicators in Table 3 Oanh (2023) Sdgindex.
development org
Independent variables
Financial stability Z-score Z-score = (ROA+EA)/(σ(ROA)) Amatus and Alireza (2015), Barik and World
Where: EA is equity/total assets Pradhan (2021), Jungo et al. (2022a), Bank;
Siddik et al. (2018), Danisman and FAS
Tarazi (2020)
Monetary Policy MP
Inflation rate INF Annual CPI growth rate (%) Alawin and Oqaily (2017), Girdzijauskas World Bank
et al. (2022)
Interbank interest IR Interbank interest rates by countries Korauš et al. (2017) World Bank
rate (%)
Foreign exchange ER Annual growth rate of foreign Korauš et al. (2017) World Bank
reserve rate exchange reserves (%)
Growth rate of M2 Annual growth rate of money supply Korauš et al. (2017), Kiseľ
akov
a et al. World Bank
money supply (%) (2020), Yin et al. (2019)
Fiscal policy FP
Government GE Government spending/GDP (%) Zhang et al. (2021); Liu et al. (2022); World Bank
expenditure Zhang et al. (2021)
Government tax TR Tax revenue (TR)/GDP (%) De Paepe and Dickinson (2014), Ozili World Bank
(2022)
Control variable
Unemployment rate UNE Unemployment rate (%) Kim et al. (2018), Sakarombe (2018) World Bank
Trade openness OPE Total exports and imports as a Le & Bao (2019); Sheikh et al. (2020) World Bank
percentage of GDP
Economic growth GDP Annual GDP growth rate (%) Adrangi and Kerr (2022) World Bank
rate
International FDG FDI/GDP Al-Smadi (2018) World Bank
integration
Population growth POP Annual population growth rate Das Gupta et al. (2011), Abel et al. World Bank
rate (2016)

Source: Compiled by the author.

Alireza (2015), Barik and Pradhan (2021), Jungo et al. joint European study (European Commission, 2019;
(2022a), Siddik et al. (2018), Danisman and Tarazi (2020) Schmidt-Traub et al., 2017).
to assess a country's financial stability, bankruptcy risk
and overall risk.
3.1.3 | Monetary policy

3.1.2 | Sustainable development: SDGI The inflation rate (INF) is considered the ultimate goal of
monetary policy (Akanbi et al., 2020; El Bouriny
The sustainable development variable is calculated based et al., 2021; Jungo et al., 2022b; Lenka & Bairwa, 2016).
on the integration of 17 integrated indicators from sus- In addition, the M2 money supply growth rate is used to
tainable development, sustainable society and sustainable see the change in the amount of money required in circu-
environment (Appendix A) according to SGDs lation under the influence of financial inclusion (Arshad
(Economic & Affairs, 2022) and approved by the center et al., 2021; El Bouriny et al., 2021; Pham & Doan, 2020).
8 DINH ET AL.

Two other monetary policy implementation tools, the IR the observed samples are randomly repeating and that
and the foreign exchange reserve rate (ER), are also used this parameter is unknown, but it is fixed and constant
to assess the impact of monetary policy on financial sta- through the repetition of the samples. The interpretation
bility and sustainable development. is based on the sample distribution of the data or the sta-
tistical character of the data. In other words, Bayesian
analysis answers the question based on the distribution
3.1.4 | Fiscal policy of the conditional parameter of the observed sample.
From the Bayesian point of view, we construct a
Fiscal policy refers to government expenditures and Bayesian linear regression using a probability distribution
taxes, which play an important role in the relation- of the following form:
ship between sustainable development and financial


stability (Chakraborty, 2022; Dumiči
c, 2019; Oldani & y  N βT X, σ 2 I , ð3Þ
Savona, 2005; Oprea et al., 2013). Therefore, this
study uses the variable government expenditures
(GE) and government taxes (TR) to represent fiscal where y is generated from a normal distribution charac-
policy. terised by mean and variance. The mean of linear regres-
In addition, the variables, trade openness (OPE), sion is the displacement of the weight matrix times the
annual economic growth rate (GDP), international inte- prediction matrix. The variance is the square of the stan-
gration (FDG) and population growth rate (POP) are also dard deviation (σ) multiplied by the identity matrix.
included in the research model. The measurement Not only the output (y) generated from the probability
methods and data sources of the variables are presented distribution but the model parameters are also assumed
in Table 1. The research model is as follows: to come from the distribution. The posterior probability
of the conditional model parameters based on the inputs
SDGIi,t ¼ βo þ β1 Zscore þ β2 MPi,t þ β3 FPi,t þ βx X i,t þ εi,t , and outputs has the following form:
ð1Þ 
Pðyjβ, XÞPðβjXÞ
P βjy, XÞ ¼ , ð4Þ
SDGIi,t ¼ βo þ β1 Zscore þ β2 MPi,t þ β3 FPi,t þ β4 MPi,t ð2Þ PðyjXÞ

Zscore þ β5 FPi,t  Zscore þ βx X i,t þ εi,t , where P(βjy, X) is the posterior probability distribution of
the model parameters for the inputs and outputs; P(yjβ,
where MP and FP are the monetary and fiscal policy vari- X) is the likelihood of the data; P(βj, X) is a prior proba-
ables, X i,t is the vector of control variables. In which, bility distribution and P(yjX) is a standard constant and
i = 1, 2, …; t = 1, 2, …, where i is country and t is time. can be eliminated. Therefore, Equation (4) is often sim-
plified to:

3.2 | Research methods and Pðβjy, XÞ ¼ Pðyjβ, XÞPðβjXÞ: ð5Þ

research data
When testing the hypothetical relationship between
In Bayesian statistics, research data are combined with a marginal interest income and explanatory variables,
priori information to compute a posterior distribution, Bayesian regression will proceed through the following
and the results are interpreted as a probability distribu- three steps. First, for the coefficients, we assume a nor-
tion of parameter values, regardless of sample size. mally distributed a priori with a mean (means) of zero for
Therefore, the Bayesian method can overcome the small all coefficients. Such a priori specification implies that the
sample disadvantage in the studies (Zondervan- coefficients resulting from Bayesian analysis are more
Zwijnenburg et al., 2017). Bayesian and frequency likely to have values close to zero than non-zero values.
methods have very different philosophies about consider- Most importantly, we do not bias the analysis results.
ing what is fixed, so the interpretation of research results Bayesian analysis of research hypotheses in a positive or
also differs. The Bayesian approach assumes the observed negative direction. Second, for the likelihood functions of
data sample is fixed and the model parameters are ran- the coefficients, we assume normal distributions with the
dom. The posterior distribution of the parameters will be parameters derived from equations (1) to (7). Finally, we
estimated based on the observed sample and the a priori apply the Markov Chain Monte Carlo (MCMC) and Gibbs
distribution of that parameter and used to interpret the Sampler techniques to arrive at the respective posterior
results. The frequency distribution assumes that distributions of the coefficients by with 12,500 times
DINH ET AL. 9

estimation and simulation drawn from posterior distribu- This means, when the money supply increases, it leads to
tion. As usual, we will be disqualified for the first 2500 increased inflation, which erodes the value of money,
withdrawals. The MCMC technique is frequently used to leading to a decrease in purchasing power and an increase
tune complex models in different fields (Levy, 2020). in the cost of living, causing instability in the financial
In this study, the author carried out research with the markets. As prices rise, consumers focus on shopping for
period from 2005 to 2020 including 7 developed countries essentials and may be less likely to buy eco-friendly prod-
and 33 developing countries. With such a small sample ucts, and businesses may also be less able to invest in sus-
problem, the Bayesian method is suitable, moreover, tainable practices, requires higher upfront costs. As a
Bayes also overcomes model defects such as autocorrela- result, there is a decrease in the adoption of sustainable
tion, heteroscedasticity and endogeneity. technologies, which can have negative impacts on the
environment. The results of the study agree with the study
of Korauš et al. (2017). The variable IR has a negative
4 | R ESEAR CH RESULTS AND effect on SDGI in both developed and developing coun-
DISC USS I ON tries in both equations and the probability of the effect is
100% in Equation (2). These findings indicate that as IRs
4.1 | Descriptive statistics rise, borrowing by businesses and individuals become
more expensive. This leads to a reduction in investment,
Table 2 shows that the average Z-score of developing as businesses may be less able to undertake new projects
countries is 17.1405, which is higher than that of devel- and invest in sustainable practices, a finding that is consis-
oped ones (9.2015). This results indicate that developing tent with Caraiani et al. (2023).
countries have higher macro stability than developed ER positively affects SDGI in both developed and
countries. The SDGI of developing countries is 66.99, developing countries in both equations. However, the
much lower than the level of 74.47 of developed probability of a positive effect on SDGI in developing
countries. countries in both equations is well above 80%, while this
probability is only lower in developed countries ranging
from less than 80% (Table 4). This shows that developing
4.2 | Bayesian regression results countries often have less stable economies and are more
vulnerable to external shocks. High foreign exchange
Bayesian regression results in Table 3 show the reserves can insulate these countries against external
following. shocks, providing a buffer against economic instability
(Yagci, 2001). In contrast, in developed countries, the
probability of the impact of foreign exchange reserves on
For the financial stability variable sustainable development is lower, suggesting that devel-
oped countries often have more stable economies and are
Z-score positively affects SDGI in developed and develop- less vulnerable to shocks, external shock. In addition,
ing countries in both equations. The probability of a posi- developed countries often have more diversified econo-
tive effect in the developed world is between 81.3% and mies and are less dependent on imports, which may
79.3%, while the probability in the developing world is reduce the need for foreign exchange reserves and the
83.2% and 81.5% (Table 4). This implies that financial sta- results agree with Faboyede et al. (2013).
bility is an important prerequisite in encouraging and
enabling financial institutions to fulfil their role as finan-
cial intermediaries and to fund the implementation of For fiscal policy variables
sustainable development goals through three paths
of economic sustainability, social sustainability and envi- GE has a positive effect on SDGI in both developed and
ronmental sustainability. This result is consistent with developing countries in both equations. This suggests
the previous study of Saïdane and Abdallah (2020), that increasing public spending contributes to sustainable
Wahab et al. (2022) and Ozili and Iorember (2023). development through the allocation of public resources
to social and environmental issues (Postula & Radecka-
Moroz, 2020). Indeed, Figure 2 shows the relationship
For monetary policy variables between SDGI and public R&D spending on renewable
energy in 33 developing countries and 7 developed coun-
INF and M2 have a negative effect on SDGI in both devel- tries, showing a positive relationship. Therefore, the
oped and developing countries in both equations. The implementation of fiscal policy by means of public spend-
probability of negative impact on SDGI is 100% (Table 4). ing through spending on the environment and renewable
10 DINH ET AL.

TABLE 2 Descriptive statistics.

The developing countries Developed countries

Standard Standard
Mean deviation Minimum Maximum Mean deviation Minimum Maximum
SDGI 66.9886 5.0328 51.2700 77.5700 74.4671 2.9609 67.5200 80.3900
Z- 17.1405 9.3859 1.4717 44.5142 9.2015 2.4267 5.3252 17.3075
score
INF 5.3598 4.6196 1.5448 48.6999 3.4735 3.1016 1.4182 15.5344
IR 6.0175 4.2748 0.4093 25.4092 3.0791 2.2293 0.0133 9.1958
ER 12.1510 27.2740 64.7293 304.4132 8.4169 18.8864 53.6588 72.8835
M2 13.8956 10.7016 20.4296 86.8127 10.0319 8.2682 10.5377 41.0979
GE 27.6485 8.0737 12.3318 52.6660 38.2537 8.5049 18.7216 54.5372
TR 16.0696 4.6844 7.8379 28.7100 18.6627 3.7027 9.1831 24.7684
UNE 8.1521 6.3303 0.1300 37.3200 7.4684 3.0646 2.0200 17.2900
OPE 79.7701 30.8044 22.1060 203.8546 94.1536 42.8471 39.1826 168.3946
GDP 3.8416 4.7032 15.1365 34.5000 2.1509 3.3751 8.5803 8.5000
FDG 4.5436 4.5844 37.1726 43.9121 6.8773 15.0244 40.0866 109.0253
INV 15.1054 7.2634 2.0004 54.6549 23.095 3.0644 17.755 32.9796
POP 1.0670 1.1388 1.8543 11.7940 1.4127 2.8207 1.8328 19.3604

TABLE 3 Bayesian regression results for the period 2005–2020.

Variable The developing countries Developed countries

(1) (2) (1) (2)

SDGI Mean (MCSE) Mean (MCSE) Mean (MCSE) Mean (MCSE)

C 64.4129 (0.0092) 70.6795 (0.0157) 72.2519 (0.0173) 34.4465 (0.0741)
INF 0.0141 (0.0004) 0.0065 (0.0007) 0.2464 (0.0008) 0.5458 (0.0051)
IR 0.0792 (0.0005) 0.4927 (0.0010) 0.1730 (0.0011) 1.4868 (0.0065)
ER 0.0059 (0.0001) 0.0120 (0.0001) 0.0040 (0.0001) 0.0336 (0.0004)
M2 0.0569 (0.0002) 0.0284 (0.0003) 0.0884 (0.0003) 0.2658 (0.0014)
GE 0.3389 (0.0002) 0.2893 (0.0004) 0.0706 (0.0003) 0.5830 (0.0016)
TR 0.0033 (0.0006) 0.1384 (0.0007) 0.0523 (0.0005) 0.0776 (0.0028)
UNE 0.1962 (0.0003) 0.2168 (0.0003) 0.1700 (0.0007) 0.2283 (0.0007)
OPE 0.0123 (0.0001) 0.0115 (0.0001) 0.0209 (0.0001) 0.0082 (0.0001)
GDP 0.0655 (0.0004) 0.0734 (0.0004) 0.1085 (0.0006) 0.1177 (0.0006)
FDG 0.0688 (0.0004) 0.0674 (0.0004) 0.0096 (0.0001) 0.0103 (0.0001)
POP 2.8158 (0.002) 2.2637 (0.0020) 1.3624 (0.002 1.2525 (0.0034)
Z-score 0.1502 (0.0002) 0.2358 (0.0007) 3.1376 (0.0060) 4.5435 (0.0092)
Z-score*INF 0.0107 (0.0000) 0.0402 (0.0006)
Z-score*IR 0.0279 (0.0000) 0.2129 (0.0008)
Z-score*ER 0.0003 (0.0000) 0.0027 (0.0000)
Z-score*M2 0.0051 (0.0000) 0.0256 (0.0002)
Z-score*GE 0.0021 (0.0000) 0.0586 (0.0002)
Z-score*TR 0.0087 (0.000) 0.1078 (0.0003)
Avg. acceptance rate 0.8083 0.8249 0.815 0.813
Avg. efficiency min 0.0194 0.2359 0.0365 0.1506
Max. Gelman–Rubin Rc 1.0000 1.0000 1.0000 1.0000
TABLE 4 Probability of impact of independent variables on dependent variable.

Developing countries Developed countries

DINH ET AL.

(1) (2) (1) (2)

Mean (standard Mean (standard Mean (standard Mean (standard

Variable deviation) MCSE deviation) MCSE deviation) MCSE deviation) MCSE
Prob (SDGI: Z-score) >0 0.832 (0.136) 0.000 0.815 (0.122) 0.002 0.813 (0.239) 0.001 0.793 (0.000) 0.000
Prob (SDGI: INF) <0 1.000 (0.000) 0.000 1.000 (0.000) 0.000 1.000 (0.000) 0.000 1.000 (0.000) 0.000
Prob (SDGI: IR) <0 0.953 (0.212) 0.002 1.000 (0.000) 0.000 1.000 (0.000) 0.000 0.947 (0.222) 0.002
Prob (SDGI: M2) <0 0.999 (0.03) 0.000 0.8129 (0.3900) 0.004 0.998 (0.04) 0.000 0.998 (0.04) 0.000
Prob (SDGI: UNE) <0 1.000 (0.000) 0.000 1.000 (0.000) 0.000 1.000 (0.000) 0.000 1.000 (0.000) 0.000
Prob(SDGI: OPE) <0 0.996 (0.063) 0.001 0.998 (0.134) 0.001
Prob (SDGI: OPE) >0 0.999 (0.325) 0.000 0.854 (0.353) 0.001
Prob (SDGI: GDP) <0 0.946 (0.227) 0.002 0.9778 (0.147) 0.001 0.935 (0.247) 0.002 0.9782 (0.143) 0.002
Prob (SDGI: POP) <0 1.000 (0.000) 0.000 1.000 (0.000) 0.000 1.000 (0.000) 0.000 1.000 (0.000) 0.000
Prob (SDGI: ER) >0 0.813 (0.389) 0.004 0.806 (0.292) 0.004 0.795 (0.461) 0.004 0.7157 (0.383) 0.003
Prob (SDGI: GE) >0 1.000 (0.000) 0.000 1.000 (0.000) 0.000 1.000 (0.000) 0.000 1.000 (0.000) 0.000
Prob (SDGI: TR) <0 0.628 (0.499) 0.005 0.671 (0.167) 0.001
Prob(SDGI: TR) >0 0.763 (0.423) 0.004 0.793 (0.383) 0.004
Prob(SDGI: FDG) >0 0.949 (0.220) 0.002 0.966 (0.1812) 0.002 0.952 (0.213) 0.002 0.9013 (0.394) 0.004
Prob (SDGI: ZscoreInf) 0.998 (0.441) 0.005 0.972 (0.164) 0.002
<0
Prob (SDGI: ZscoreIR) 1.000 (0.000) 0.000
>0
Prob(SDGI: ZscoreIR) 0.972 (0.164) 0.002
<0
Prob (SDGI: ZscoreER) 0.896 (0.387) 0.004 0.925 (0.499) 0.005
>0
Prob (SDGI: ZscoreM2) 1.000 (0.000) 0.000 0.983 (0.393) 0.005
<0
Prob (SDGI: ZscoreGE) 0.997 (0.53) 0.005 1.000 (0.000) 0.000
>0
Prob (SDGI: ZscoreTR) 0.633 (0.183) 0.000
<0
Prob (SDGI: ZscoreTR) 1.000 (0.000) 0.000
>0
11
12 DINH ET AL.

78.00 7.00

76.00 6.00

74.00
5.00

72.00
4.00
70.00
3.00
68.00

2.00
66.00

64.00 1.00

62.00 0.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Public R&D spending on renewable energy by developed countries

Public R&D spending on renewable energy by developing countries
SDGI of developing countries
SDGI of developed countries

F I G U R E 2 Relationship between public R&D spending on renewable energy and SDGI. [Colour figure can be viewed at
wileyonlinelibrary.com]

energy helps to increase the SDGI index. This is rein- and small businesses, especially in the context of develop-
forced by Table 4. The probability of a positive impact on ing countries that still have high poverty rates.
SDGI in both groups of countries is almost 100%. Results in Table 3 indicate that there is a difference in
TR has a positive effect on SDGI in developed coun- the level of increasing impact of Z-score when combined
tries and the probability of the effect is quite high at over with monetary policy and fiscal policy. Specifically:
76% in both equations. However, in developing countries,
the relationship between TR is negative in the equation. 1. Financial stability in the environment of high infla-
It can be seen that TR in these countries increases sus- tion and increased money supply (ZscoreInf and
tainable development and reduces income inequality in ZscoreM2) negatively affects sustainable development
developed countries, the finding is consistent with the and the probability of impact is 99.8%; 100% in devel-
Çelik and Basdas (2010). This is the premise for sustain- oping countries and 97.2%; 98.3% in developing coun-
able development in these countries. Meanwhile, TR can tries. These outcomes show that high rates of inflation
also have a negative impact in developing countries and and money supply can lead to uncertainty and volatil-
Table 4 shows the probability of a negative impact is ity in financial markets, creating instability that may
62.3% in Equation (1) and 67.12% in Equation (2). It can discourage investment in sustainable development
be seen that TR has not been effectively promoted in projects. Investors may be hesitant to invest in long-
these countries, indicating that the tax system is strug- term projects with uncertain returns, and businesses
gling due to corruption, limited enforcement and weak may focus on short-term returns rather than sustain-
capacity, which can limit the ability to collect and effi- able development.
ciently allocate TR for sustainable development initia- 2. Financial stability in the environment of increasing
tives. This is true of the report from the United Nations foreign exchange reserves (ZscoreER) positively affects
Development Program, the state of taxation and sustain- sustainable development and this interaction has the
able development in developing countries. In addition, probability of impact at 89.6% and 92.5%, much higher
the Committee's statistics (2015) highlight that the weak than the independent impact of the Z-score. That
tax system, inefficient management and corruption prob- means financial stability in an environment of
lems reduce revenue collection and create incentives for increasing foreign exchange reserves can create oppor-
unsustainable activities. In addition, if tax policy is not tunities for sustainable development by promoting
carefully designed, high taxes can put pressure on people investment, reducing borrowing costs, providing
DINH ET AL. 13

additional resources for development, and reducing As we have shown in Section 3.2, the posterior distri-
vulnerability to external shocks. bution is created based on MCMC technique, so the qual-
3. Financial stability with IR (ZscoreIR) presents a posi- ity of the sample generated by MCMC algorithm must
tive impact on sustainable development with 100% accurately estimate the target distribution (Levy, 2020).
probability in developing countries. Meanwhile, in Therefore, MCMC diagnostic tools are needed to test the
developed countries, this impact is negative at 97.2%. convergence of Markov series and MCMC sampling stop.
This implies that, in developed countries, rising IRs In this paper, the author uses Gelman–Rubin statistics,
lead to instability and instability in financial markets, also called is the coefficient Rc, to test the convergence of
making investors hesitant and more difficult to invest Markov series and the efficiency index to consider stop-
in sustainable development projects. Therefore, it can ping MCMC sampling.
also be difficult for businesses to make long-term Table 3 shows that the coefficients Rc of all parame-
plans in an unstable environment. In developing ters are less than 1.1. According to Levy (2020), the Rc
countries, the trend is opposite, one of the main rea- coefficient less than 1.1 is evidence that the MCMC algo-
sons is that in a stable financial environment, when rithm has generated representative samples, that is, the
high IRs can attract investors and depositors to Markov sequences have converged. At the same time, the
deposit money in banking and investing in business efficiency index of the Markov series is all greater than
projects. When more people deposit money in banks, 0.01, indicating that the MCMC-based estimates are more
credit institutions will have more sources of money to accurate and stable about the characteristics of the poste-
lend and invest. This will help increase credit and rior distribution. Thus, the MCMC diagnosis through the
investment, thereby promoting economic develop- Rc coefficient and the efficiency index showed that
ment and ensuring the sustainability of the economy. the quality of the sample generated by the MCMC algo-
4. Financial stability combined with government spend- rithm provided an accurate estimate of the posterior
ing (ZscoreGE) gives a high probability impact at distribution.
100% in both developed countries and 99.7% in devel-
oping countries. Meanwhile, tax income in a finan-
cially stable environment increases the probability of 5 | C O N C L U S I O N A N D PO L I C Y
a positive impact by 100% in developed countries, and IMPLICATIONS
reduces the level of negative impact by 60.9% in devel-
oping countries. It can be seen that financial stability 5.1 | Conclusion
in the environment of increased TR still has a negative
impact in developing countries, but the probability of This study analyses the impact of financial stability on
impact is reduced compared with the absence of this sustainable development from the perspective of fiscal
combination. Tax systems in developed countries have and monetary policy in 33 developing countries and
not been effective to contribute to sustainable 7 developed countries in the period 2005–2020. Bayesian
development. regression results show that financial stability has a posi-
tive impact on sustainable development in the studied
In addition, the results also show the positive con- countries, but the probability of the impact is low. In
tribution of UNE and POP to sustainable development developed countries, the probability of impact in Equa-
and the probability of impact at 100% in both groups of tions (1) and (2) is 81.3% and 79.3%, respectively, while
countries, GDP has a negative impact in two groups of this probability in developing countries is 83.2% and
countries with a probability of more than 93%. In con- 81.5%. When considering the impact of monetary policy,
trast, FDG has a positive impact on sustainable devel- the probability and direction of impact change.
opment and the probability of impact is over 90% in Specifically:
both groups of countries, OPE has a negative impact in
developing countries and positively in developed 1. Financial stability in an environment of high inflation
countries. and increased money supply (ZscoreInf and
Testing for Bayesian regression shows that the aver- ZscoreM2) negatively impacts sustainable develop-
age acceptance rate (Avg. acceptance rate) of the two ment with a probability of 99.8% and 100% in
equations for developed and developing countries is both developing countries and 97.2% and 98.3% in devel-
above 0.8. The minimum efficiency (Avg. efficiency: min) oped countries, respectively.
of the two equations in both groups of countries is above 2. Financial stability in the environment of increasing
the permissible level of 0.01, so all the above models are foreign exchange reserves (ZscoreER) positively affects
satisfactory. sustainable development with the probability of 89.6%
14 DINH ET AL.

and 92.5%, much higher than the independent impact unsustainable deficits and debt. Public spending should
of financial stability. prioritize environmental sustainability by supporting
3. Financial stability with IR combination for positive investments in clean energy, sustainable agriculture and
impact and 100% probability of impact in developing conservation. Policymakers should adopt policies that
countries. Meanwhile, in developed countries, this promote the transition to a low-carbon economy and
effect is negative at 97.2%. reduce environmental impact.
4. Financial stability with combined government spend- Due to limited access, this study only collects data
ing (ZscoreGE) gives an impact probability of 100% in from seven developed countries—which cannot fully rep-
developed countries and 99.7% in developing coun- resent all the countries in this group, so the implications
tries. Meanwhile, tax income in a financially stable of the study are only meaningful for these countries
environment increases the probability of a positive (Appendix B). Moreover, the research data is only col-
impact by 100% in developed countries, and reduces lected until 2020, while the recent Covid-19 pandemic
the level of negative impact to 60.9% in developing and the Russian–Ukrainian conflict are two periods of
countries. strong fluctuations in the economy, health, people and
environment. These factors have a strong influence on
financial stability and the sustainable development index.
5.2 | Policy implications In the future, researcher can collect more data in devel-
oped countries and update the data to the current period
Based on the research results, it is evident that to move 2023 to have a more comprehensive view of the impact
towards sustainable development, a common policy on financial stability, monetary and fiscal policy in these
approach for both groups of countries should prioritize two groups of countries.
financial stability. This should be combined with mone-
tary policies to curb inflation while actively increasing A C KN O WL ED G EME N T S
foreign exchange reserves and fiscal policies that promote The authors acknowledge being supported by the Univer-
government spending. Some specific policy recommenda- sity of Finance–Marketing, Vietnam.
tions include the following:
Inflation and money supply can be managed through C O N F L I C T O F I N T E R E S T S T A TE M E N T
effective monetary policy, including setting appropriate The authors declare no conflicts of interest.
IRs, controlling the money supply and regulating the
banking sector. Central banks in both developed and DA TA AVAI LA BI LI TY S T ATE ME NT
developing countries should aim to stabilize prices The data that support the findings of this study are avail-
and aim to maintain a low inflation rate to help limit able from the corresponding author upon reasonable
shocks to sudden IR changes that cause market volatility. request.
This is a premise to help stabilize finance and promote
sustainable development. ORCID
Developed and developing countries should maintain Le Quoc Dinh https://orcid.org/0000-0002-3300-6148
adequate foreign exchange reserves to withstand external Tran Thi Kim Oanh https://orcid.org/0000-0003-0118-
shocks and ensure adequate foreign currency availability 1248
to meet macro needs, which can boost confidence, inves- Nguyen Thi Hong Ha https://orcid.org/0000-0001-8337-
tors and support financial stability. Fluctuations in 8700
exchange rates can affect the value of foreign exchange
reserves and undermine financial stability. Central banks RE FER EN CES
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ing a global green new deal.
Sheikh, M. A., Malik, M. A., & Masood, R. Z. (2020). Assessing the
effects of trade openness on sustainable development: Evidence Le Quoc Dinh is affiliated with University of Finance
from India. Asian Journal of Sustainability and Social Responsi- – Marketing, Ho Chi Minh City, Vietnam. His
bility, 5(1), 1–15. research area involves Finance and Banking.
Siddik, M., Alam, N., & Kabiraj, S. (2018). Does financial inclusion
induce financial stability? Evidence from cross-country analy- Tran Thi Kim Oanh is working as a lecturer at Fac-
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Sitek, P. (2021). Foreign exchange reserves of central banks and area involves Financial Management, Finance and
European Central Bank as an important element of the concept Banking.
of sustainable development. OPUS International Journal of
Society Researches, 18 (Yönetim ve Organizasyon Özel Sayısı), Nguyen Thi Hong Ha is working as a lecturer at
1785-1795. Faculty of Accounting, Finance – Banking, Ho Chi
Thach, N. N. (2020). How to explain when the ES is lower than Minh City Industry and Trade College, Ho Chi Minh
one? A Bayesian nonlinear mixed-effects approach. Journal of City, Vietnam. Her research area involves Finance
Risk and Financial Management, 13(2), 21.
and Banking.
Wahab, S., Imran, M., Safi, A., Wahab, Z., & Kirikkaleli, D. (2022).
Role of financial stability, technological innovation, and renew-
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18 DINH ET AL.

A P P END I X A : SEVENTEEN INDICATORS FOR CALCULATING THE SUSTAINABLE

DEVELOPMENT INDEX

Sustainable development index (SDGI)

Indicator 1 No poverty (European Commission, 2019; Schmidt-Traub et al., 2017)
Indicator 2 No hunger
Indicator 3 Good health and well-being
Indicator 4 Quality education
Indicator 5 Gender equality
Indicator 6 Clean water and sanitation
Indicator 7 Affordable and clean energy
Indicator 8 Decent work and economic growth
Indicator 9 Industry, innovation and infrastructure
Indicator 10 Reduced inequalities
Indicator 11 Sustainable cities and communities
Indicator 12 Responsible consumption and production
Indicator 13 Climate action
Indicator 14 Life below water
Indicator 15 Life on land
Indicator 16 Peace, justice and strong institutions
Indicator 17 Partnerships for the goals

A P P END I X B: LIST OF DEVELOPED AND

DEVELOPING COUNTRIES

Developing countries: Albania; Armenia; Azerbaijan;

Ukraine; Brazil; Botswana; China; Colombia; Costa Rica;
Dominican Republic; Georgia; Ghana; Guatemala;
Uruguay; Honduras; Indonesia; Israel; Jamaica; Kyrgyz
Republic; Cambodia; South Africa; Morocco; Moldova;
Mexico; North; Macedonia; Mongolia; Malaysia;
Nicaragua; Peru; Philippines; Paraguay; Romania;
Thailand; Turkey.
Developed countries: Australia; Bulgaria; Chile;
Czech Republic; Croatia; Russian Federation; Hungary.

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