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

Gourène, Grakolet Arnold Zamereith and Mendy, Pierre (2017): 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 Dimitrescu and Hurlin (2012) 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 and the overall rate of use of financial services. 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, while promoting Financial Inclusion reforms that are beneficial to Financial Inclusion, make more efficient the levers favoring macroeconomic growth, which also seems to be a decisive factor of Financial Inclusion.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial Inclusion, Economic Growth, Time Scales, Heterogeneity Panel Causality, MODWT.
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C00 - General; G - Financial Economics > G2 - Financial Institutions and Services; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development

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