Causality between Financial Performance, Fintech, Financial Inclusion, and Financial Development in Emerging and Developing Economies: A Cross Country Analysis
33 Pages Posted: 18 May 2022
Many empirical studies have examined the determinants of financial development in emerging and developing economies. However, the determinants of financial development are dynamic, multi-layered, and are affected by technological progress and country-specific characteristics. In particular, the causality between financial performance, financial inclusion, fintech penetration, and financial development has not been specifically examined. Using two indexes of financial performance estimated from the information-intensive processes of asset transformations in deposit-taking financial institutions of more than 60 economies, this paper investigates the link between these performance indexes, fintech penetration, financial inclusion, and their joint effects on financial development. The main findings suggest that fintech penetration drives financial development in economies with lower financial inclusion and poor ratio-based financial performance index. In addition, the causality from financial development to financial inclusion, and from the latter to the former coexist. However, the causality from robust financial performance index to financial development is unidirectional. These findings demonstrate that despite poor financial infrastructure and weak financial performance, financial development in developing and emerging economies could be improved by relevant policies that stimulate FinTech innovations.
Keywords: Financial inclusion, FinTech, financial development, financial performance
Suggested Citation: Suggested Citation