Causality between Financial Inclusion, Financial Stability and Economic Growth in Sub-Saharan Africa

Financial inclusion has become a policy agenda for financial stability and sustainable economic growth for the developing world. However, there seems to be a lack of consensus across the literature on the relationships between financial inclusion, financial stability and economic growth. Given the d...

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Bibliographic Details
Published inSustainability Vol. 15; no. 2; p. 1152
Main Authors Jima, Meshesha Demie, Makoni, Patricia Lindelwa
Format Journal Article
LanguageEnglish
Published Basel MDPI AG 01.01.2023
Subjects
Causality
Collateral
Complementarity
Developing countries
Divergence
Economic development
Economic growth
Economic theory
Entrepreneurship
Financial inclusion
Financial services
GDP
Gross Domestic Product
Hypotheses
Inequality
LDCs
Macroeconomics
Principal components analysis
Stability
Sustainability
Sub-Saharan Africa
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Summary:Financial inclusion has become a policy agenda for financial stability and sustainable economic growth for the developing world. However, there seems to be a lack of consensus across the literature on the relationships between financial inclusion, financial stability and economic growth. Given the divergent views, this paper aims to examine the causal relationships between financial inclusion, financial stability and economic growth in the Sub-Saharan African (SSA) countries. In this study, panel data were used for twenty six selected SSA economies and a principal component analysis (PCA) was applied to construct a composite index for financial inclusion. In addition, an autoregressive distributed lags (ARDL) cointegration test was applied to examine the short- and long-run relationships between the variables of interest. Separate and joint Granger causality tests were used to assess the direction of causality. The result of the study indicated that there are both short-run and long-run relationships between financial inclusion, financial stability and economic growth in the SSA countries. Moreover, the Granger causality tests revealed that there are separate two-way causalities and joint uni-directional causalities, indicating complementarity between these variables. It is, therefore, necessary for policy makers, regulators and financial sector advisors to follow a holistic approach while developing and implementing policies and strategies that promote financial inclusion in order to attain sustainable economic growth in the region.
ISSN:2071-1050
2071-1050
DOI:10.3390/su15021152