Abstract:
The present study develops a Financial Inclusion (FI) index and extends an
interlinkage between FI and Economic Growth (EG). The study is the first to develop
an FI index created for the main trading nations from 2001-2019 based on financial
development, financial depth, and financial stability and creates an association
between FI and EG, including trade and foreign investment. Once the FI index is
constructed, panel data analysis is applied by examining the stationarity and cointegration of the series, followed by panel regression and causality tests. Findings
highlight a strong interlinkage between FI, EG, trade, and foreign investment for the
selected nations. It suggests that the nations emphasize financial inclusion to stimulate
EG, enhance trade, and increase foreign investment inflows. Each of the three
variables is highly integrated, as indicated in the results, and acts as prerequisites for
each other. The study is a significant contribution to the field of FI, trade, and EG. As
very few studies have been carried out for integrated analysis, this study helps devise
policies for expanding further relationships between FI, trade, investment, and EG
across nations. Moreover, this study is the first to select a time period that marks major
events like the US-China Trade War (2018) and the Global Financial Crisis (2008).
The results of this study are helpful to the governments and policymakers of various
economies. They can improvise the existing policies and procedures related to trade
and foreign investment to enhance FI and EG. It is seen that for each country, the effect
of the variables selected is different. In terms of developing holistic and effective trade
policies, each nation can assess the relationship between these four key
macroeconomic variables.
