Nexus between Financial Inclusion and Economic Activity: A Study about Traditional and Non-Traditional Financial Service Indicators Determining Financial Outreach

Gerth, Florian (2023): Nexus between Financial Inclusion and Economic Activity: A Study about Traditional and Non-Traditional Financial Service Indicators Determining Financial Outreach.

Abstract

This paper empirically analyzes the link between financial inclusion (SDG 8.10) and economic activity. Instead of following the past literature and approximating financial inclusion by variables only capturing traditional financial services, it takes into account non-traditional financial services including mobile money and non-branch retail agent outlets. With the help of the Normalized Inverse of the Euclidian Distance and a one-way fixed effects panel model, this pa-per documents empirically robust results about the positive link between financial inclusion and the level economic activity. In addition, a break between poverty and financial inclusion is established by regressing the calculated index of financial inclusion on demographic, socio-economic and variables concerning the health and depth of the financial sector. The implications of this finding are two folds. First, it highlights the improvements of low, lower-middle and upper-middle income countries in terms of outreach to financial services in the last decade. Second, it shows that the level of education and the soundness and depth of the local financial sector are important in reaching higher levels of financial inclusion. Overall, our results emphasize the importance of targeted policies to increase the accessibility, availability and usage of the financial sector in attaining sustainable and long-lasting economic prosperity.

• Item Type: MPRA Paper
• Language: English
• Keywords: financial inclusion; non-traditional financial services; economic development; Financial Access Survey (FAS)
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E13 - Neoclassical; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance

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