Financial access and the finance–growth nexus: evidence from developing economies
International Journal of Social Economics
ISSN: 0306-8293
Article publication date: 23 February 2021
Issue publication date: 4 May 2021
Abstract
Purpose
This study examines the impact of financial institutions access and financial institutions depth on economic growth in 51 low- and lower–middle-income countries from 1996 to 2017.
Design/methodology/approach
The study employs an index of financial institutions depth and financial institutions access that considers the multidimensional nature of finance. The study employs a generalised least squares model as the baseline fixed effects model suffers from serial correlation. In addition, the study examines the marginal impact of financial development on growth at varying levels of financial access.
Findings
The results show that both financial access and financial depth are positive to growth. However, the marginal impact of financial depth is negative at low levels of financial access, while the finance–growth relationship becomes positive at higher levels of financial access. Results suggest the importance of developing inclusive financial systems that emphasise quality rather than quantity to promote economic growth.
Research limitations/implications
The major limitation lies in the measurement of financial access as it focusses more on financial system penetration and overlooks the other aspects of financial inclusion such as financial literacy and cultural differences.
Practical implications
Developing countries should continue to develop an inclusive financial system that supports the Universal Financial Access 2020 initiative.
Originality/value
This study provides further empirical evidence on the finance–growth literature focussing on the impact of financial inclusion which is scarce. Furthermore, the study employs an index of finance that captures the multidimensional nature of finance.
Keywords
Acknowledgements
The author acknowledge the direction of the handling editor, Dr Julian Roche, and the suggestions provided by two anonymous referees.Funding: The author received no direct funding for this research.Conflict of Interest: No potential conflict of interest was reported by the author. The usual disclaimer applies.
Citation
Haini, H. (2021), "Financial access and the finance–growth nexus: evidence from developing economies", International Journal of Social Economics, Vol. 48 No. 5, pp. 693-708. https://doi.org/10.1108/IJSE-08-2020-0549
Publisher
:Emerald Publishing Limited
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