Nonlinear relationship between financial inclusion and inclusive economic development in developed economies: evidence from panel smooth transition regression model

Abstract

Purpose

The purpose of this study is to investigate the nonlinear association between financial inclusion and inclusive economic growth (IEG) in developed economies. A Block of G7 countries (Germany, Japan, Canada, France, Italy, the UK and the US) are considered in this study.

Design/methodology/approach

For analysis, the authors have employed the “Panel Smooth Transition Regression model.” Annual data consists of the period from 1995 to 2019.

Findings

This research makes a unique contribution to literature with reference to G7 countries, being a pioneering attempt to apply the panel threshold regression model to analyze the relationship between financial inclusion and IEG by applying more rigorous and advanced econometric techniques.

Originality/value

The results indicate that total labor force available in a country, gross fixed capital formation and financial inclusion are positive and significant in lower regimes, but as it moves toward the higher regime, the labor force available in a country becomes less impactful. However, an increase has been observed in financial inclusion in the higher regime. The complete sample generally exhibits a positive yet significant relationship between financial inclusion and inclusive economic development.

Citation

Timer, S. and Raza, S.A. (2023), "Nonlinear relationship between financial inclusion and inclusive economic development in developed economies: evidence from panel smooth transition regression model", International Journal of Social Economics, Vol. 50 No. 8, pp. 1022-1037. https://doi.org/10.1108/IJSE-04-2022-0223