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New insights into the impact of financial inclusion on economic growth: A global perspective

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  • Mohammad Naim Azimi

Abstract

Financial inclusion is critical to inclusive growth, proffering policy solutions to eradicate the barriers that exclude individuals from financial markets. This study explores the effects of financial inclusion on economic growth in a global perspective with a large number of panels classified by income and regional levels from 2002–2020. The analysis begins with the development of a comprehensive composite financial inclusion index comprised of penetration, availability, and usage of financial services and the estimation of heterogeneous panel data models augmented with well-known variables. The results obtained from the panel cointegration test support a long-run relationship between economic growth, financial inclusion, and the control variables in the full panel, income-level, and regional-level economies. Furthermore, the study employs a GMM (generalized method of moment) approach using System-GMM estimators to examine the effects of financial inclusion and the control predictors on economic growth. The results of the GMM model clearly indicate that financial inclusion has a significantly positive impact on economic growth across all panels, implying that financial inclusion is an effective tool in fostering rapid economic growth in the world. Finally, the study delves into the causality relationship between the predictors and provides statistical evidence of bidirectional causality between economic growth and financial inclusion, whereas it only supports unidirectional causality relationships from credit to the private sector, foreign direct investment, inflation rate, the rule of law, school enrollment ratio, and trade openness with no feedback causality. Moreover, the study fails to provide causality evidence from the age dependency ratio and population to economic growth.

Suggested Citation

  • Mohammad Naim Azimi, 2022. "New insights into the impact of financial inclusion on economic growth: A global perspective," PLOS ONE, Public Library of Science, vol. 17(11), pages 1-25, November.
    • Handle: RePEc:plo:pone00:0277730
    DOI: 10.1371/journal.pone.0277730
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    References listed on IDEAS

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    1. Muhammad Subtain Raza & Jun Tang & Sana Rubab & Xin Wen, 2019. "Determining the nexus between financial inclusion and economic development in Pakistan," Journal of Money Laundering Control, Emerald Group Publishing Limited, vol. 22(2), pages 195-209, May.
    2. Levine, Ross, 1992. "Financial intermediary services and growth," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 383-405, December.
    3. Mishel Ghassibe & Maximiliano Appendino & Samir Elsadek Mahmoudi, 2019. "SME Financial Inclusion for Sustained Growth in the Middle East and Central Asia," IMF Working Papers 2019/209, International Monetary Fund.
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    1. Chadi Azmeh & Marwan Al-Raeei, 2024. "Exploring the dual relationship between fintech and financial inclusion in developing countries and their impact on economic growth: Supplement or substitute?," PLOS ONE, Public Library of Science, vol. 19(12), pages 1-22, December.

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