Geopolitical shocks, capital outflows, financial inclusion and digital financial inclusion

Peterson K. Ozili

Journal of Financial Regulation and Compliance, 2025, vol. 34, issue 1, 132-159

Abstract: PurposeThis study aims to examine the effect of capital outflows, induced by geopolitical shocks, on financial inclusion and digital financial inclusion in emerging markets and developing economies (EMDEs).Design/methodology/approachSeveral indicators of financial inclusion and digital financial inclusion were analysed using the median quantile regression and generalised linear model regression methods.FindingsCapital outflows, induced by geopolitical shocks, have a negative effect on financial inclusion and digital financial inclusion. Greater capital outflows, induced by geopolitical shock, decrease the level of financial inclusion through a contraction in the number of commercial bank branches in emerging markets and developing economies. Also, greater capital outflows, induced by geopolitical shock, decrease the level of digital financial inclusion through a decrease in the number of people using the internet to access commercial bank branch services and automated teller machine services. Political stability, GDP growth, population growth, unemployment, tax revenue and regulatory quality are significant determinants of financial inclusion and digital financial inclusion.Practical implicationsThe social implication is that geopolitical shocks and capital outflows adversely affect society by limiting access to essential financial services. The managerial implication is that financial managers will constantly need to anticipate geopolitical risk, its effect on financial services and develop safeguards to cushion its effect on financial service providers and customers.Originality/valueRecent geopolitical events, such as tariff trade wars and the financial sanctions imposed on Russia during the Ukraine-Russian war, have heightened concerns about the effect of geopolitical shocks on economies and financial systems. The existing literature have not examined the effect of geopolitical shocks and capital outflows on the provision of financial services by financial service providers in EMDEs.

Keywords: Geopolitical risk; Shocks; Financial inclusion; Digital financial inclusion; Capital outflow; Foreign direct investment; Financial inclusion index; Bank branch; Depositors; Automated teller machines; Fintech (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-03-2025-0061

DOI: 10.1108/JFRC-03-2025-0061

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