Financial inclusiveness and economic growth: new evidence using a threshold regression analysis

Abstract

This paper investigates the effect of financial inclusiveness on economic growth in selected developed and developing countries (63 countries) for the years of 2014 and 2017. The level of financial inclusiveness for each country is calculated using a new construction of the financial inclusion index. The role of financial inclusiveness on economic growth is subsequently estimated using a cross-sectional threshold regression technique. The main findings revealed that there is a threshold effect of the financial inclusiveness-growth nexus, which means that financial inclusiveness exhibits a non-monotonic positive relation with economic growth. The positive effect is more pronounced at a high level than in the low level of financial inclusion index. These new findings should motivate policymakers and the banking sector in each country to exert greater effort in raising the level of financial inclusion in stimulating sustainable economic growth.

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

“…However, this argument was challenged by some researchers while showing the insignificant association between domestic credit and economic growth aiming at poverty alleviation [90]. Credit accessibility [91] and financial inclusion [55,92,93] were found to have positive relationships with economic growth, while an inverse association was established between financial development and economic growth [94]. Note: standard errors in brackets and, * for 10%, ** for 5%, *** for 1% level of significance.…”

“…Empirical studies have shown that FI increases financial stability [53] and decreases income inequality irrespective of the size of the financial system [54]. Financial inclusiveness for 63 developed and developing countries (2014-2017) was positively related to economic growth [55]. Another empirical study using cross-sectional data for 40 countries organized under the Organization for Economic Co-operation and Development (OECD) between 2004 and 2011 suggested that FI helps reduce income inequality irrespective of income level, and FI is more effective for countries with weak financial systems [56].…”

Improving financial capability: the mediating role of financial behaviour

“…Therefore, financial inclusion enhancement is required, and it can cause financial capability building (ACCION, 2019). Timely, accessible, costeffective, financially attractive, easy to use, safe & secure, and reliable financial products & services lead to financial inclusion (Aprea et al, 2016;Nizam et al, 2020;Sherraden, 2013). Another study stressed external factors (i.e., access to and use of services and products) concerning financial capability improvement and stated financial inclusion is an important point to be taken care of, for financial capability development (Chowa et al, 2014).…”

The influence of economic institution on finance sector credit allocation in China

“…The government wants the banks to make politically advantageous loans, which, although they will reduce the bank's profits, will generate social or political benefits (Brandao-Marques et al, 2020;Sahin & Berument, 2019;Thakor, 2021). From the perspective of the influence of finance on the market behaviour of enterprises, it is found that the investment of non-state-owned economy is pro-cyclical, while the investment of state-owned economy has a small fluctuation and a certain degree of counter-cyclical, and the investment of state-owned economy plays a stabilising role in the macroeconomy (Nizam et al, 2020;Wang et al, 2020).…”