The impact of financial inclusion on economic growth: the case of selected African counties

Abstract

This study uses a panel data estimation approach to estimate the relationship between financial inclusion and economic growth using the case of 34 countries in Sub-Saharan Africa. The study uses panel data sourced from the World Bank which include the Global Financial Index survey and World Development Indicators covering the periods of 2011, 2014 and 2017. The study analysis is based on two models, the first model measures the relationship between financial inclusion and economic growth and the second model measures the relation between financial inclusion and financial development. The results of the first model established a relationship between financial inclusion (measured by account ownership and a composite financial index) and economic growth (measured by Logarithm of GDP). This confirms what is in the literature, that financial inclusion stimulates economic growth. The results from the second model established that financial development (measured by the ratio of credit to GDP) is significantly related to financial inclusion (measured by account ownership and the composite index of financial inclusion). Overall, the results indicate that the use of composite variable and General Least Squares estimation approaches improves the robustness of the regression models. Based on these findings, the study, therefore, recommends among other things that the government promote financial inclusion through reforms in education, trade and industrialisation.