The financial inclusion–economic growth nexus: what is new now?

Abstract

Purpose – This paper examines the nexus between financial inclusion and the economic growth of an emerging market. Design/methodology/approach – We use dataset from the World Bank and Heritage Foundations over the period 2005–2016 and fully modified least squares (FMOLS) and dynamic OLS (DOLS) to examine the financial inclusion–economic growth nexus in Ghana. Findings – We document a negative relationship between financial inclusion and economic growth, and the causal nexus is unidirectional from financial access to GDP. Financial penetration, however, causes GDP growth, and GDP growth also causes financial penetration. We also document that IT infrastructure, the depth of financial services, employment and inflation drive economic growth in an emerging market. Practical implications – The findings support international calls to prioritize financial penetration policies geared toward greater economic growth. Originality/value – The paper adds to extant literature by highlighting new empirical insights on the financial inclusion–economic growth nexus from a sub-Saharan Africa market perspective.

Keywords

• Financial access and penetration
• Sustainable development
• Africa
• Macroeconomics
• Emerging markets