Financial Inclusion, Financial Sector Development and Inclusive Development: Evidence from Frontier and Emerging Markets

Abstract

This thesis analyzes financial inclusion, financial sector development and inclusive development with evidence from frontier and emerging markets. It employed the dynamic panel Generalized Methods of Moments (system GMM) approach for the empirical analysis. It examined whether the level of economic development drives or hampers financial inclusion in frontier markets. It finds that income level, financial literacy and healthy lives are the decisive factors for promoting financial inclusion in the banking sector, bond and stock markets. It shows new evidence that the underlying cause of low financial inclusion is low human development. The thesis further examines the role of financial inclusion in financial sector development in frontier markets. It finds that bank account penetration is important for expanding the depth of the banking sector, but it plays no decisive role in expanding the access (breadth) and efficiency of the banking sector. Also, it finds that borrowers’ penetration is very critical for scaling up the breadth of the banking sector. In addition, it shows that ATM penetration is a driver of the depth and the breadth of the banking sector. Besides, it documents empirical evidence that financial inclusion is essential in promoting the depth and access dimensions of bond and stock markets, but it worsens their efficiency. Contrarily, it finds new evidence of developed financial sector promoting financial inclusion. Additionally, the thesis contends that the banking sector and capital market cannot independently drive each other’s progress unless there is the presence of greater financial inclusion. Employing the panel granger causality test, it empirically establishes evidence of a strong two-way causality between the banking sector and bond (debt) market development via the catalytic role of financial inclusion. But a one-way causality in the case of the banking sector and stock market development via the catalytic role of financial inclusion both in the context of emerging markets. Finally, the thesis investigates whether financial inclusion is a precondition for promoting inclusive development in frontier and emerging markets. It empirically shows evidence University of Ghana http://ugspace.ug.edu.gh iv that financial inclusion empower the poor and vulnerable groups to engage in economic activities to obtain basic incomes, healthcare and education. It documents that mobile telephony, and internet are instrumental in promoting greater financial inclusion, developed financial sector and inclusive development. The thesis concludes with empirical evidence that frontier and emerging nations can better promote financial inclusion and inclusive development through banks and capital markets. Financial regulators, supervisors and providers musts therefore, provide affordable, diversified and customized financial products and services through more mobile banking, internet banking, on-line trading and other branchless avenues to promote inclusive finance and development by inclusion.