Financial Inclusion’s Role in Economic Growth and Human Capital in South Asia: An Econometric Approach

Abstract

Many of the 2030 sustainable development goals have targeted the strengthening of financial inclusion, which is currently a key policy priority on the agendas of most governments in developing nations. The process of facilitating banking and financial services for individuals is called financial inclusion, which supports growth and the broader development goals of an economy. Although economic growth and human capital development indices have been analyzed using different proxy variables, insufficient attention has been paid to constructing a composite index for measuring this to achieve greater sustainability in terms of the economy, communities, and the environment. This study sought to address this gap using secondary data from eight countries in South Asia from 2004 to 2018. A financial inclusion index was developed through principal component analysis using an econometric approach of panel data with vector error correction models and a Granger causality test. As per the results of the study, financial inclusion has a long-run impact on human capital development in South Asian countries, whereas it has a short-run positive impact on economic growth. Domestic credits to the private sector also impact the short-run growth and human capital development in the economy. This ensures the confidence of vulnerable communities in their economy, as well as information management, and allows for quality enhancements of transactions with fewer environmental impacts. Government intervention to improve access to financial services, including ATMs and commercial banking, is one policy allowing digital finance to accelerate the achievement of sustainable development goals in South Asian countries.

Financial inclusion and human development: is there a nexus?

“…The study implies that a high level of financial inclusion would trigger higher levels of human development. This result advocates the findings of Sarma and Pais (2008), Nanda and Kaur (2016), Datta and Singh (2019), Ababio et al (2020), Matekenya et al (2020) and Thathsarani et al (2021).…”

Do Digital Finance and the Technology Acceptance Model Strengthen Financial Inclusion and SME Performance?

“…More commonly, FI is essential for promoting SME expansion [28] and substantial employment growth [29]. Thus, it would lead the immediate and longtime benefits for the economy [30].…”

The impact of banking and capital market financial inclusion on economic development in Nigeria

“…The Augmented Dickey-Fuller T-statistic is greater than the test critical value at the 5% level and the probability is less than 0.05. This allows us to reject the null hypotheses that state credit to the private sector has a unit root (Thathsarani, Wei, & Samaraweera, 2021).…”