Does financial inclusion control corruption in upper-middle and lower-middle income countries?

Abstract

Presence of corruption in a system is always a path breaker for transparent distribution of public services in the economy. Therefore, controlling corruption is a high priority for progress of a country’s growth. The main objective of this study was to empirically examine the impacts of financial inclusion on control of corruption in selected upper-middle and lower-middle income countries. Using cross-country annual data from 2004 to 2018, the study applied fixed effect, random effect, panel corrected standard errors, feasible general least square and 2SLS (two-stage least-squares regression) models to evaluate the impacts of financial inclusion on control of corruption across all samples from upper-middle and lower-middle income countries. The results from the upper-middle income (UMI) countries demonstrated that a basic level of financial inclusion has no impact on the control of corruption, whereas higher intensification of financial inclusion beyond the basic level positively impacts it. Similarly, the findings from lower-middle-income (LMI) countries indicated that financial inclusion up to a certain threshold level helps to control corruption, whereas financial inclusion above the threshold level negatively impacts the control of corruption. These empirical findings suggest that in the overall sample, financial inclusion plays an important role to control corruption.