Revisiting long-run dynamics between financial inclusion and economic growth in developing nations: evidence from CS-ARDL approach
Journal of Financial Economic Policy
ISSN: 1757-6385
Article publication date: 22 November 2023
Issue publication date: 22 February 2024
Abstract
Purpose
This study aims to analyze the long-run dynamic relationship between financial inclusion and economic growth for developing nations.
Design/methodology/approach
This study develops a comprehensive financial inclusion index based on the UNDP methodology for 53 developing nations. The authors use second-generation unit root tests, cointegration techniques and an advanced dynamic common correlated effects estimator model called cross-sectional augmented autoregressive distributed lags (CS-ARDL) to examine long-run dynamics among variables.
Findings
The tests confirm the presence of slope-heterogeneity and cross-sectional dependency. The second-generation panel unit root tests show the chosen variables are stationary at first difference. The bootstrap Westerlund cointegration result shows the variables are cointegrated in the long run. The CS-ARDL estimates conclude that financial inclusion positively enhances gross domestic product per capita in selected developing countries. The robustness check through augmented mean group estimation validates the findings.
Originality/value
The study makes three important contributions: first, it constructs a comprehensive financial inclusion index using 10 variables for a panel of 53 developing nations; second, the potential cross-section dependence and slope heterogeneity of panel data have been accounted for by applying the second-generation unit root tests; third, the study uses the dynamic common correlated effects estimator model (CS-ARDL) to examine long-run dynamics among variables.
Keywords
Acknowledgements
Declarations
Ethics approval and consent to participate: Not applicable.
Funding: There is no funding available for this study.
Consent for publication: Not applicable.
Availability of data and materials: The data sets generated and analyzed during the current study are available in the World Development Indicators (2022).
Links: https://databank.worldbank.org/source/world-development-indicators#.
Competing interests: The authors declare that they have no financial or nonfinancial interests directly or indirectly related to the work submitted for publication.
Citation
Mir, T.A., Gopinathan, R. and Joshi, D.P.P. (2024), "Revisiting long-run dynamics between financial inclusion and economic growth in developing nations: evidence from CS-ARDL approach", Journal of Financial Economic Policy, Vol. 16 No. 2, pp. 176-193. https://doi.org/10.1108/JFEP-07-2023-0186
Publisher
:Emerald Publishing Limited
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