Financial Inclusion for Inclusive Growth

This paper examines how financial inclusion, among other factors, shapes the transition to inclusive and sustainable growth in a sample of 67 countries. We first analyze the heterogeneous and asymmetric relationship between inclusiveness and its main determinants using recent panel quantile regression techniques. Our results suggest that the distributional effect of financial inclusion, institutional quality and ICT diffusion is statistically significant only in the lower tail of the conditional distribution. While both financial inclusion and ICT are detrimental to inclusive growth, institutional quality appears to be conducive to greater shared prosperity. We next examine the existence of mediating effect in the process of inclusiveness using nonlinear panel threshold modelling. Our results highlight the mediating role of financial inclusion in achieving more inclusive and sustainable growth. While ICT infrastructure has a negative impact on growth inclusiveness at low levels of financial inclusion, a positive relationship is found when financial affordability exceeds a certain threshold. Policymakers are called upon to harness the combined impact of financial inclusion, governance quality and ICTs to ensure the inclusiveness of economic growth.