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Does Financial Inclusion Amplify Output Volatility in Emerging and Developing Economies?

Author

Listed:
  • Tony Cavoli

    (University of South Australia)

  • Sasidaran Gopalan

    (Nanyang Technological University (NTU))

  • Ramkishen S. Rajan

    (National University of Singapore)

Abstract

This paper empirically investigates if, in what direction, and under what circumstances financial inclusion amplifies or moderates output volatility, which is a matter of concern for monetary policymakers in emerging and developing economies (EMDEs). The empirical estimation for a large panel of over 100 EMDEs spanning the period 1995 to 2013 finds a strong and persistent trade-off between higher financial inclusion and output stability. The paper also finds strong and robust evidence of non-linearity governing this relationship. Countries with high degrees of financial inclusion as well as those that are relatively lower income tend to experience a significant trade-off between financial inclusion and output stability. Further, the paper also finds that reckless financial inclusion coinciding with excessive credit growth tends to worsen output volatility.

Suggested Citation

  • Tony Cavoli & Sasidaran Gopalan & Ramkishen S. Rajan, 2020. "Does Financial Inclusion Amplify Output Volatility in Emerging and Developing Economies?," Open Economies Review, Springer, vol. 31(4), pages 901-930, September.
    • Handle: RePEc:kap:openec:v:31:y:2020:i:4:d:10.1007_s11079-019-09568-0
    DOI: 10.1007/s11079-019-09568-0
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    More about this item

    Keywords

    Financial inclusion; output volatility; credit growth; emerging and developing economies; panel data;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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