Financial inclusion, religiosity and economic welfare in majority Christian, Hindu and Muslim countries

This study investigates the effect of financial inclusion on economic welfare in three religious country groups: majority Christian countries, majority Hindu countries and majority Muslim countries. The study analysed 30 religious countries during the 2004 to 2020 period using the two-stage least squares regression method. The economic welfare variables are the gross domestic product (GDP) growth rate, GDP per capita growth, inflation rate and the unemployment rate. The main explanatory variable is the composite financial inclusion index. The control variables are corruption control index, political stability index, total population growth, rule of law index and the regulatory quality index. It was found that financial inclusion is positively correlated with corruption control, political stability, rule of law and regulatory quality in religious countries while financial inclusion is negatively correlated with total population growth, economic growth, GDP per capita growth, inflation rate and unemployment rate in religious countries. Regression results show that high level of financial inclusion decreases the unemployment rate in majority Muslim countries. A pre-existing low unemployment rate is significantly associated with higher financial inclusion in majority Christian and Muslim countries. High level of financial inclusion decreases the inflation rate in countries that have significant Islamic finance activity. Financial inclusion has an insignificant effect on economic welfare in majority Hindu countries. The implication of the findings is that the type of religion and the size of Islamic finance activity matter in understanding the relationship between financial inclusion and economic welfare in religious countries.