Does Financial Inclusion Enhance Economic Growth? Empirical Evidence from the IDB Members’ Countries
43 Pages Posted: 30 May 2019
Date Written: May 3, 2019
This innovative study examines the effect of financial inclusion measures by financial inclusion index (FII) on the economic growth of the Islamic Development Bank (IDB) members’ countries. The data were collected on different elements of financial inclusion and economic growth for the period 2000-2016. In order to draw multidimensional results, we have set up the panel data for 45 countries, and we estimated the GMM, 2SLS, panel VAR, and panel Granger causality tests. Based on the results of dynamic panel estimations, we find that financial inclusion index (FII) has a positive effect on economic growth. The overall FII and economic growth have bi-directional causalities with each other based on the panel Granger causality tests. Therefore, it suggests that the financial inclusion index has a positive effect on the economic growth in IDB members’ countries. These finding recommended that the policymakers should consider financial inclusion as a driver of the economic growth in the long run and has strong policy implications for the Islamic development bank members’ countries.
Keywords: Financial Inclusion Index, Economic Growth, GMM, Panel VAR, IDB
JEL Classification: C33, F43, G21, O11, P34
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