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Is Digital Financial Inclusion Unlocking Growth?

Author

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  • Purva Khera
  • Miss Stephanie Y Ng
  • Ms. Sumiko Ogawa
  • Ms. Ratna Sahay

Abstract

Digital financial services have been a key driver of financial inclusion in recent years. While there is evidence that financial inclusion through traditional services has a positive impact on economic growth, do the same results carry over for digital financial inclusion? What drives digital financial inclusion? Why does it advance more in some countries but not in others? Using new indices of financial inclusion developed in Khera et. al. (2021), this paper addresses these questions for 52 developing countries. Using cross-sectional instrument variable procedure, we find that the exogenous component of digital financial inclusion is positively associated with growth in GDP per capita during 2011-2018, which suggests that digital financial inclusion can accelerate economic growth. Fractional logit and random effects empirical estimation identifies access to infrastructure, financial and digital literacy, and quality of institutions as key drivers of digital financial inclusion. These findings are then used to help inform policy recommendations in areas related to the digitization of financial services to promote financial inclusion.

Suggested Citation

  • Purva Khera & Miss Stephanie Y Ng & Ms. Sumiko Ogawa & Ms. Ratna Sahay, 2021. "Is Digital Financial Inclusion Unlocking Growth?," IMF Working Papers 2021/167, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/167
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    Cited by:

    1. Kouladoum, Jean-Claude & Wirajing, Muhamadu Awal Kindzeka & Nchofoung, Tii N., 2022. "Digital technologies and financial inclusion in Sub-Saharan Africa," Telecommunications Policy, Elsevier, vol. 46(9).
    2. Mr. Boileau Loko & Yuanchen Yang, 2022. "Fintech, Female Employment, and Gender Inequality," IMF Working Papers 2022/108, International Monetary Fund.
    3. Adugna, Hailu, 2024. "Fintech dividend: How would digital financial services impact income inequality across countries?," Technology in Society, Elsevier, vol. 77(C).
    4. Ozili, Peterson K, 2022. "Financial inclusion washing," MPRA Paper 114337, University Library of Munich, Germany.
    5. Peterson K. Ozili, 2024. "Natural rate of financial inclusion: a global database," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-63, December.
    6. Srinivasu Bathula & Ankita Gupta, 2021. "The determinants of Financial Inclusion and Digital Financial Inclusion in India: A Comparative Study," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 13(2), pages 109-120, December.
    7. Huimin Li, 2023. "Impact of Digital Inclusive Finance on Household Formal Credit: Evidence from China Household Finance Survey," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(6), pages 1-9.
    8. Kropp, Per & Theuer, Stefan & Fritzsche, Birgit, 2021. "Digitalisierung schreitet voran - Neuschätzung der Substituierbarkeitspotenziale in Sachsen-Anhalt 2019," IAB-Regional. Berichte und Analysen aus dem Regionalen Forschungsnetz. IAB Sachsen-Anhalt-Thüringen 202103, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    9. Apeti, Ablam Estel & Edoh, Eyah Denise, 2023. "Tax revenue and mobile money in developing countries," Journal of Development Economics, Elsevier, vol. 161(C).
    10. Purva Khera & Stephanie Ng & Sumiko Ogawa & Ratna Sahay, 2022. "Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index," Asian Economic Policy Review, Japan Center for Economic Research, vol. 17(2), pages 213-230, July.
    11. Blind, Knut & Niebel, Crispin, 2022. "5G roll-out failures addressed by innovation policies in the EU," Technological Forecasting and Social Change, Elsevier, vol. 180(C).
    12. Valentina Vasile & Mirela Panait & Simona-Andreea Apostu, 2021. "Financial Inclusion Paradigm Shift in the Postpandemic Period. Digital-Divide and Gender Gap," IJERPH, MDPI, vol. 18(20), pages 1-28, October.
    13. Bakhsh, Satar & Zhang, Wei & Ali, Kishwar & Anas, Muhammad, 2024. "Transition towards environmental sustainability through financial inclusion, and digitalization in China: Evidence from novel quantile-on-quantile regression and wavelet coherence approach," Technological Forecasting and Social Change, Elsevier, vol. 198(C).
    14. Donghong Wu & Yiren Chen, 2023. "Digital Inclusive Finance Development and Labor Productivity: Based on a Capital-Deepening Perspective," Sustainability, MDPI, vol. 15(12), pages 1-17, June.
    15. Kropp, Per & Theuer, Stefan & Fritzsche, Birgit, 2021. "Digitalisierung schreitet voran – Neuschätzung der Substituierbarkeitspotenziale in Thüringen 2019," IAB-Regional. Berichte und Analysen aus dem Regionalen Forschungsnetz. IAB Sachsen-Anhalt-Thüringen 202104, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    16. Suhrab, Muhammad & Chen, Pinglu & Ullah, Atta, 2024. "Digital financial inclusion and income inequality nexus: Can technology innovation and infrastructure development help in achieving sustainable development goals?," Technology in Society, Elsevier, vol. 76(C).
    17. Lin, Ying & Yan, Xiaohan & Yang, Xiuyun, 2023. "Digital finance and enterprise investment efficiency in China," International Review of Financial Analysis, Elsevier, vol. 90(C).
    18. Yasuyuki Sawada, 2022. "Comment on "Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index"," Asian Economic Policy Review, Japan Center for Economic Research, vol. 17(2), pages 233-234, July.
    19. Sant'Anna, Dário A.L.M. & Figueiredo, Paulo N., 2024. "Fintech innovation: Is it beneficial or detrimental to financial inclusion and financial stability? A systematic literature review and research directions," Emerging Markets Review, Elsevier, vol. 60(C).
    20. Cristi Spulbar & Lucian Claudiu Anghel & Ramona Birau & Simona Ioana Ermiș & Laurențiu-Mihai Treapăt & Adrian T. Mitroi, 2022. "Digitalization as a Factor in Reducing Poverty and Its Implications in the Context of the COVID-19 Pandemic," Sustainability, MDPI, vol. 14(17), pages 1-26, August.
    21. Qingmin Yin & Nan Su & Chenhui Ding, 2024. "The Nonlinear Effects of Digital Finance on Corporate ESG Performance: Evidence from China," Sustainability, MDPI, vol. 16(18), pages 1-27, September.
    22. Tugba GUZ & Gulden POYRAZ, 2023. "The Digital Financial Inclusion Index: A Cross-Country Comparison," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 10(1), pages 157-180, January.

    More about this item

    Keywords

    A. literature review; digitization of financial services; capital markets department; growth rate; Digital financial services; number in bracket; regression equation; Financial inclusion; Mobile banking; Middle East and Central Asia; Caribbean; Asia and Pacific;
    All these keywords.

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