Financial Inclusion and Economic Growth in WAEMU: A Multiscale Heterogeneity Panel Causality Approach

Abstract

This paper examines the causal relationship between Financial Inclusion and economic growth in the West African Economic and Monetary Union (WAEMU) from 2006 to 2015. We combined the heterogeneity panel causality test proposed by [1] with the Maximal Overlap Discrete Wavelet Transform (MODWT) to analyze the bi-directional causality at different time scales. We used two Financial Inclusion indicators: the overall rate of demographic penetration of financial services (Financial Inclusion supply) and the overall rate of use of financial services (Financial Inclusion demand). Our results show that at scale 1 (2-4 years), there is no causality between economic growth and Financial Inclusion indicators. However, at scale 2 (4-8 years), we found a bi-directional causality between economic growth and Financial Inclusion. Policymakers should therefore promote reforms that are beneficial to financial inclusion, especially on the supply side, while making the levers for macroeconomic growth more efficient, which also seems to be a decisive factor in financial inclusion.

Does Financial Permeation Promote Economic Growth? Some Econometric Evidence From Asian Countries

“…The results also explain that LogGDPC i,t causes LogFP1 i,t , LogFP2 i,t , LogFP3 i,t , and LogFP4 i,t at 1%. Thus, we find that there exists reverse causality between financial permeation and economic growth consistent with the findings of Evans and Lawanson (2017), Gourène and Mendy (2017), and Sharma (2016). (Breusch & Pagan, 1980) 118.357 .000 CD LM1 (Pesaran, 2004) 11.638 .013 CD LM2 (Pesaran, 2004) -2.013 .000…”

The Relevance of Financial Inclusion on Sustainable Economic Growth in Sub-Saharan African Nations

“…Also, the periodicity of the relationship under review was not sufficiently long. A mutual causality concerning the two factors has also been noted by others [11,74]. Interestingly, panel data analysis was applied in Kim, Yu and Hassan [11], which described the complementary effect of inclusive financing on the growth of the economy in the sovereignties of the Organization of Islamic Cooperation (OIC).…”

“…The study by Ibrahim and Alagidede [82] in SSA however shows that, while financial development positively and significantly influences economic growth, below a certain estimated threshold, finance is largely insensitive to growth while significantly influencing economic activity for countries above the thresholds. Others argue that inclusive financing and the growth of economies simply have independence or an inconsequential influence [74].…”

Financial Inclusion, Mobile Phone Diffusion, and Economic Growth; Evidence From Africa

“…Others have concluded that economic growth drives financial inclusion; the demand-following hypothesis (Babajide et al, 2015;Evans, 2015). Others have observed a reciprocal causality between the two variables (Gourène andMendy, 2017 andKim et al, 2018). Others argue that there is simply independence or unimportant influence between financial inclusion and the growth of economies (Gourène and Mendy, 2017).…”

“…A higher Z-score therefore designates a more stable banking system. Based on the works of Gourène and Mendy (2017) who used GDP per capita growth as an indicator of economic growth, the study proxy economic growth with GDP per capita growth to allow for cross country comparisons and capturing of income distribution effects. The values are obtained from the World Bank Development Indicators Database.…”