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Title Impact of Financial Inclusion on Economic Growth for Emerging Asian Economies

Author(s) Sarmad Fida

Abstract This study is an attempt to empirically evaluate the role of financial inclusion in economic growth of emerging Asian economies. For this purpose, 10 emerging Asian economies selected over the time period of fifteen years from 2005 to 2019 on the basis of the their GDP growth rate of last one and half decade. To examine the impact of financial inclusion an Index for financial services is constructed for above mentioned economies. This index is based on two major categories of financial services (Usage and Access). Financial access is based on accessibility of financial/banking services and it is on the footing of most widely used and acceptable banking sector indicators like ATM per 100,000 adults, and commercial bank branches per 100,000 adults. Usage of financial services is decided on the basis of outstanding loan from commercial banks as a percentage of GDP and outstanding deposits of commercial banks as a percentage of GDP. Inverse Euclidian distance technique is adopted for measurement of Index of Financial Inclusion as suggested by M. Sarma and Pais (2012). IFI along with other control variables (Physical Capital, Human Capital, FDI, Labour Force and Trade) used as independent variables in suggested model and GDP per Capita as dependent variable. Selection of variables and models is based on economic theory whereas estimation of the models is done through Generalized Method of Moment (GMM) and fixed/random effect model used to deal with Hetrosekdasticity and Autocorrelation issues. Under this methodology causal relationship between GDP per capita and IFI with other control variables is analysed through Granger causality test. Findings of this study concluded that financial inclusion effects positively and significantly to economic growth process in emerging Asian economies. Moreover, all those countries who possess higher level of financial inclusion on index also share a greater extent of income and economies with lower level of financial inclusion have lower level of income and lies under lower middle or lower income group as described by World Bank. After that, selected emerging economies were categorized as low, medium and high financial included economies on the basis of index to check the effect of IFI on above mentioned economies. In accordance with the results obtained from this study there is a need to boost up the magnitude of financial services to achieve a higher level of economic growth, such as encouraging youth to open bank account or account compulsion for all financial transactions, making banking sector friendlier and formalities regarding financial services must be eradicated or minimized. JEL Codes: B22, C33, C43, G28, O47 Key Words: Financial Inclusion; Index of Financial Inclusion; Panel Data; Economic Growth

Type Thesis/Dissertation

Faculty Management Sciences

Department Economics

Language English

Publication Date 2022-04-22

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