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Financial inclusion, the shadow economy and economic growth in developing economies

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  • Younas, Zahid Irshad
  • Qureshi, Atiqa
  • Al-Faryan, Mamdouh Abdulaziz Saleh

Abstract

This study explores the impact of the financial inclusion and size of the shadow economy on the economic growth of developing economies over the period 2008–2017. The data for the endogenous, exogenous and control variables were collected from the World Development Indicators, the International Monetary Fund's (IMF) Financial Access Survey (FAS) and Medina and Schneider's global database (2019). The study applies a panel ordinary least square (OLS) fixed effect, a two-step difference generalised method of moments (GMM) and panel Granger causality approach. The results reveal that financial inclusion has a positive and statistically significant impact on economic growth; while in developing economies, the size of the shadow economy has a significant negative impact on economic growth. The findings remain robust to alternative econometric estimations. The asymmetric results in different countries provide practical insights for governments, policymakers and regulators.

Suggested Citation

  • Younas, Zahid Irshad & Qureshi, Atiqa & Al-Faryan, Mamdouh Abdulaziz Saleh, 2022. "Financial inclusion, the shadow economy and economic growth in developing economies," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 613-621.
    • Handle: RePEc:eee:streco:v:62:y:2022:i:c:p:613-621
    DOI: 10.1016/j.strueco.2022.03.011
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    Cited by:

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    2. Sèna Kimm Gnangnon, 2022. "Do Aid for Trade Flows Help Reduce the Shadow Economy in Recipient Countries?," Economies, MDPI, vol. 10(12), pages 1-33, December.
    3. Ridwan, Lanre Ibrahim & Ajide, Kazeem Bello & Cifuentes-Faura, Javier & Al-Faryan, Mamdouh Abdulaziz Saleh, 2024. "Shadow economy implications of financial development in Africa: Do income groups also matter?," Emerging Markets Review, Elsevier, vol. 59(C).
    4. Goudarzi, Mostafa & Mittone, Luigi, 2023. "Shrinking the shadow economy: Experimental insights into the role of financial development," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).
    5. Lee, Chien-Chiang & Lou, Runchi & Wang, Fuhao, 2023. "Digital financial inclusion and poverty alleviation: Evidence from the sustainable development of China," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 418-434.
    6. Kenan İlarslan, 2024. "Non-parametric evidence on the determinants of access to financial services in the countries of the Organization of Turkic States," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 14(4), pages 1035-1055, December.
    7. Huang, Hongyun & Mbanyele, William & Fan, Shuangshuang & Zhao, Xin, 2022. "Digital financial inclusion and energy-environment performance: What can learn from China," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 342-366.
    8. Nohoua TRAORE, 2023. "La formalisation améliore-t-elle la productivité des firmes en Côte d’Ivoire ?," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 57, pages 5-27.

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    More about this item

    Keywords

    Financial inclusion; Shadow economy; Economic growth; Developing regions; C33; E44; G23; O11; O17; P52;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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