Does the Quality of Institutions Matter for Financial Inclusion? Cross Country Evidence

Peter W. Muriu

International Journal of Economics and Finance, 2021, vol. 13, issue 7, 27

Abstract: Despite evidence on the importance of financial inclusion, little is known about the role of institutions in fostering inclusion partly because of data availability. Using annual data corresponding to 120 countries for the period 2004-2019, this study investigates country institutional characteristics associated with the ownership of deposit accounts. A standard regression model is estimated using fixed effects panel data techniques along with financial inclusion proxy and three measures of institutional quality. This paper provides the first empirical justification that financial inclusion is non-negligibly driven by the institutional context. Specifically, rule of law and quality of regulations are crucial in enhancing financial inclusiveness, more so in Africa where they have a stronger effect relative to other regions. Banks and depositors in Africa may be operating in an environment characterized by weak legal systems and excessive or challenging regulations. The evidence presented in this paper may therefore help with the sequencing of institutional reforms that could promote financial inclusion.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ibn:ijefaa:v:13:y:2021:i:7:p:27

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