The Nexus of Financial Inclusion and Economic Performance: Role of Governance in Asia

Financial Inclusion and Economic Performance

Abstract

Asian developing economies are placing greater emphasis on financial inclusion and increasing awareness about its importance to reducing poverty and improving economic performance. Many kinds of research regarding financial inclusion and economic performance have been undertaken. However, there is a lack of literature on Asia's financial inclusion and economic performance. This study examined the effect of financial inclusion on economic performance across 23 Asian nations. Moreover, the study also investigates the moderating role of governance in the nexus of financial inclusion and economic performance for Asian economies. The study uses the Euclidean distance method to compute the economic performance and financial inclusion indexes for Asian countries. Furthermore, the governance index has also been computed using principal component analysis in this research. Moreover, the Panel data analysis techniques and Driscoll Kraay standard error estimation method are used to conduct data analysis. The empirical evidence concluded that financial inclusion contributes positively and significantly to the economic performance of Asia. At the same time, inflation harms the economic performance of Asia. It also revealed that governance moderates the relationship between financial inclusion and economic performance in Asia. Based on the findings, countries with relatively low financial inclusion would benefit from improved governance. In order to maximize the impact of financial inclusion on the economic performance of Asian countries, our recommendation is to create a national strategy that will improve access to finance and policies that will enhance governance.