Revisiting long-run dynamics between financial inclusion and economic growth in developing nations: evidence from CS-ARDL approach

Tariq Ahmad Mir, R. Gopinathan and D.P. Priyadarshi Joshi

Journal of Financial Economic Policy, 2023, vol. 16, issue 2, 176-193

Abstract: Purpose - This study aims to analyze the long-run dynamic relationship between financial inclusion and economic growth for developing nations. Design/methodology/approach - This study develops a comprehensive financial inclusion index based on the UNDP methodology for 53 developing nations. The authors use second-generation unit root tests, cointegration techniques and an advanced dynamic common correlated effects estimator model called cross-sectional augmented autoregressive distributed lags (CS-ARDL) to examine long-run dynamics among variables. Findings - The tests confirm the presence of slope-heterogeneity and cross-sectional dependency. The second-generation panel unit root tests show the chosen variables are stationary at first difference. The bootstrap Westerlund cointegration result shows the variables are cointegrated in the long run. The CS-ARDL estimates conclude that financial inclusion positively enhances gross domestic product per capita in selected developing countries. The robustness check through augmented mean group estimation validates the findings. Originality/value - The study makes three important contributions: first, it constructs a comprehensive financial inclusion index using 10 variables for a panel of 53 developing nations; second, the potential cross-section dependence and slope heterogeneity of panel data have been accounted for by applying the second-generation unit root tests; third, the study uses the dynamic common correlated effects estimator model (CS-ARDL) to examine long-run dynamics among variables.

Keywords: Financial institution and services; Economic development: Financial markets; Econometric and statistical methods (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-07-2023-0186

DOI: 10.1108/JFEP-07-2023-0186

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