How Financial Development and Regional Integration Promotes Inclusive Growth? Evidence from BRI Countries?

Abstract

This research examines the role of financial development and regional integration to attain inclusive growth in selected BRI countries from 2000 to 2020. Existing studies for BRI focused on economic growth, infrastructure development and environmental sustainability. A few studies indicated pro-poor growth, but no empirical study was found regarding inclusive growth. Economic growth is inclusive in a sense to promote employment level, reduction in poverty and inequality along with increased accessibility and social security. To incorporate these factors, this study calculates a detailed inclusive growth index incorporating its four dimensions using principal component analysis (PCA) and applies Pooled OLS and two stages least squares (2SLS) to overcome the endogeneity problem. The results shows that FD, TO and FDI are significant in explaining inclusive growth in selected countries. Moreover, four pillars of inclusive growth are individually analyzed to attain clearer results. These findings indicate that regional integration along with FD, TO and FDI increases economic growth with employment level, reduces poverty and inequality and increases accessibility with social protection. Therefore, the study recommends that outward FDI flow from China towards BRI emerging countries is crucial for employment generation with reduced poverty and inequality and improves accessibility and social security. Domestically, Host countries must stabilize their economies politically, socially, and culturally to attain maximum gain from this FDI inflow for sustainability.