Do financial inclusion and R&D matter? Exploring the effect of uncertainty on economic performance

Chien-Chiang Lee (), Chih-Wei Wang and Chen-Min Pan

Applied Economics, 2022, vol. 54, issue 3, 307-325

Abstract: Using a dataset that includes 24 developing and developed countries for the period 1984–2017, this research adopts outstanding deposits with commercial banks to GDP ratio and research and development (R&D) expenditure to GDP ratio as main proxies of financial inclusion and R&D, respectively. The empirical results suggest that promoting financial inclusion or R&D can offset the harmful effects of uncertainty on economic performance and that the impact of R&D with uncertainty is statistically significantly greater than the impact of financial inclusion with uncertainty. Moreover, our subsample analyses indicate that the mitigating effects of financial inclusion and R&D exist in nonfinancial crisis periods, developed countries, and the European region. To address endogeneity concerns, we employ six instrumental variables in a two-stage least squares regression (IV-2SLS). Our findings have useful policy implications to government for dealing with economic policy uncertainty for the economy’s benefit.

Date: 2022
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DOI: 10.1080/00036846.2021.1950909

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