THE NEXUS BETWEEN FINANCIAL INCLUSION AND ECONOMIC DEVELOPMENT IN SOUTH ASIA EVIDENCE FROM; SELECTED SOUTH ASIAN COUNTRIES
Perera, L. A. S.1 and Udayangani, S. M.2
1,2Department of Finance, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka
1shanakapererauok@yahoo.com, 2senanayakau323@gmail.com
ABSTRACT
The purpose of this study is to examine the nexus between financial inclusion and economic development in South Asian countries. Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs, transactions, payments, savings, credit, and insurance delivered in a responsible and sustainable way. FI has been shown to reduce poverty, improve societal well-being, and promote more inclusive economic development. This research uses the panel data set for six selected countries from the South Asian region for a period from 2004 to 2021. The number of bank branches, outstanding loans from commercial banks, outstanding deposits with commercial banks, and the number of automated teller machines are used to measure financial inclusion, and the Human Development Index is used to measure economic development. This study used the descriptive statistical approach, unit root test, panel ARDL co-integration test, and pairwise Dumitrescu-Hurlin panel causality test to investigate the nexus between financial inclusion and economic growth in South Asia. The findings of this study indicate the existence of a long-run co-integration between financial inclusion and economic development in South Asian countries. Specifically, the number of bank branches, outstanding loans from commercial banks, and outstanding deposits with commercial banks exhibit a positive long-term relationship with economic development. Conversely, the number of automated teller machines (ATMs) demonstrates a negative long-term relationship with economic development. A main finding of the Dumitrescu-Hurlin Panel Causality Test shows that there is homogeneous Granger causality from outstanding deposits to the Human Development Index (HDI). The test does not find enough evidence to support a causal relationship between economic development and the other variables of financial inclusion, such as the number of bank branches, outstanding loans, and ATMs. This implies that, out of the four financial inclusion variables examined, only one demonstrates a causal relationship with human development in South Asia. Consequently, the study concludes that there is no significant causal relationship between financial inclusion and economic development in the region.
Keywords: Financial Inclusion, Economic Development, South Asia, Human Development, Causal Relationship
