Does digital financial inclusion moderate or exacerbate output volatility?

Sasidaran Gopalan and Ramkishen S. Rajan

Applied Economics Letters, 2022, vol. 29, issue 19, 1804-1809

Abstract: Fintech, broadly encompassing financial innovations enabled by digital technology, has seen phenomenal growth across emerging and developing economies (EMDEs) over the last few years. While the fintech revolution can facilitate broader financial inclusion and spur overall economic growth, concerns have been raised about the possible impact of fintech on growth volatility. Using a selected heterogeneous panel of 40 EMDEs spanning 2009 to 2017 we find that greater digital financial inclusion persistently exacerbates output volatility, although this result holds true only in countries with low banking concentration. Our results are robust to both different definitions of digital financial inclusion and alternative methodologies controlling for potential endogeneity.

Date: 2022
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DOI: 10.1080/13504851.2021.1963400

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