Financial inclusion and human development: is there a nexus?

Abstract

Purpose-The purpose of this study is to investigate the nexus between financial inclusion and human development for countries belonging to different income groups during 2009-2019, and whether this relation differs across these groups. Design/methodology/approach-The paper constructs an index of financial inclusion (IFI) for different income group countries employing dynamic panel data models estimated by generalized method of moments (GMM) to analyse the relation between financial inclusion and human development. Findings-Financial inclusion in low and lower-middle-income countries has higher effect on human development than in high and upper-middle income countries. Research limitations/implications-The study examines the effect of IFI on the human development index (HDI) at the aggregate level. Future research can tackle the IFI effect on every component of HDI and other aspects of financial inclusion could be incorporated like financial technology. Originality/value-The originality lies in constructing an index for financial inclusion using the most recent data for a wide range of countries, in addition to examining the impact of financial inclusion on the human development levels of different income groups allowing for more accurate analysis tackling the differences in terms of adopted policies across various income groups; unlike other studies that are carried out on a one country basis or only across one or two country groups that do not allow for comparison across various groups of countries. Keywords Financial inclusion, Human development, Index of financial inclusion, Dynamic panel data model, Generalized method of moments Paper type Research paper 1. Introduction With the growing importance of human development, the sustainable development goals (SDGs) have explicitly incorporated human development within four of its goals (no poverty, good health and well-being, quality education and decent work) and implicitly through two of them (zero hunger and peace), to be achieved by the year 2030. These goals, if realized, are expected to promote human development eventually. On the other side, as the world economy becomes more integrated, great attention is given to financial inclusion, which is considered a trending topic not only for global financial institutions such as the World Bank (WB) and the International Monetary Fund (IMF) but also for governments and regulators in many countries. Financial inclusion is perceived as an enabler for 7 of the WB 17 SDGs. Moreover, the G20 is committed to promoting financial inclusion worldwide and implementing the G20 High-Level Principles for Digital Financial Inclusion. Since 2010, more than 55 countries have been committed to achieving high financial inclusion