Assessing the Impact of Traditional Financial Inclusion and Digital Financial Inclusion on Inclusive Growth: Cross-Country Analysis

Abstract

The pace of the development of financial technologies contributes to broadening the role of the financial sector in the economy through enhancing Financial Inclusion (FI). Hence, this expanded the role of the financial sector not to be limited to its impact on economic growth only, but it also affects the inclusive growth pillars. The study analyzed the effect of Traditional Financial Inclusion (TFI) and Digital Financial Inclusion (DFI) on inclusive growth (IG) for 103 countries in the year 2021. This analysis is conducted through a cross-section analysis by developing two multiple regression models and using the OLS method to examine the capability of the technological progress in the financial sector to reap more benefits for inclusive growth in the economy. The results of the study indicate that TFI is statistically insignificant which reflects that TFI is not enough to affect the inclusive growth aspects while the DFI has a positive and statistically significant impact on inclusive growth at a significance level of 1% in which a 1% increase in the DFI increases inclusive growth on average by 2.73%. Hence, the digital transformation in the financial sector fosters inclusive growth