Measuring Financial Inclusion and Its Impact on Macroeconomic Goals in South Asian countries

Abstract

Financial inclusion is a key element of social inclusion, particularly useful in increasing inclusive growth by opening blocked advancement opportunities for underprivileged segments of the population. This study empirically investigates the impact of financial inclusion on macroeconomic goals in South Asian countries. The analysis is carried out using annual panel data for the period of 2004-2018. For this purpose, the study constructs two novel indices: financial inclusion index (FII) which measures the level of financial inclusion and modified human development index (i.e., HDIM) which measures inclusive growth. Particularly, the study uses availability, accessibility and usages of formal financial services for FII. newlineOverall, the cross country study has evidenced that the performance of all the South Asian countries on financial inclusion has been increasing from 2004 to 2018. But it is interesting that among study countries, India is the only country which performed better with the highest value of FII from 2013 to 2017. The result also indicated that all South Asian countries were included in the high financial inclusion category in 2018. Further, the study employed various econometrics tools such as IPS unit root test, Pedroni panel cointegration test, panel FMOLS (fully modified ordinary least squares) and DOLS (dynamic ordinary least squares) to determine the long-run elasticity of independent variables on dependent variables. The results of the study have evidenced that financial inclusion has a positive and statistically significant impact on human development, per capita income, agricultural productivity and CO2 emissions. That means access to and usage of formal financial services would increase the level of human development, per capita income, agricultural productivity and CO2 emissions in South Asian countries. Additionally, the results of the study have indicated that financial inclusion has a negative and statistically significant impact on income inequality. That means access to and usage of for