Dynamic common correlated effects of financial inclusion on economic growth: empirical evidence from Organization of Islamic Cooperation (OIC) countries

Purpose - Financial inclusion is a critical component of financial development, which disseminates accessible financial services to benefit all parts of society and consequently promotes economic growth. The study explores the dynamic common correlated effects of financial inclusion on economic growth in Organization of Islamic Cooperation (OIC) countries. Design/methodology/approach - The conventional econometric techniques overlook heterogeneity and cross-sectional dependence and provide false results. Hence, a unique methodology, ‘Dynamic Common Correlated Effects (DCCE)’, is used, which can efficiently tackle the above-mentioned issues. Findings - The DCCE estimation indicates a positive and significant impact of financial inclusion on economic growth in overall and higher-income OIC economies. Moreover, in the lower-income OIC group, financial inclusion is inversely correlated with economic growth, which converts into a positive linkage by including an interaction term of financial inclusion and institutional quality. Practical implications - Based on the research outcomes, it is recommended that policymakers and governments of OIC economies seek to increase financial inclusion to achieve sustainable, optimal and inclusive economic growth. Originality/value - The DCCE technique in this study considers heterogeneity and cross-sectional dependence among countries and thus provides robust findings.