Examining the Nexus of Financial Inclusion, Household Consumption, and Economic Growth: A 3SLS Approach

Abstract

The relationship between finance and the economy is a long-standing debate in the development literature. While some researchers argue that finance tracks economic growth, others contend that finance is a crucial determinant of economic growth. The research findings on this topic differ depending on the country, period studied, data analyzed, and research methodology employed. 
 On the other hand, the relationship between economic growth and financial inclusion is a relatively new area of study in academic literature. The primary objective of financial inclusion is to guarantee that each person has access to and uses financial products at an affordable cost. Within this context, accessing and using financial products is seen in the framework of financial citizenship. 
 This paper examines the impacts of digital banking and financial inclusion on economic growth and household consumption in Turkey. For this purpose, financial inclusion and digital banking indices have been constructed. Further, the relations between these indices with the GDP Index and the Resident Household Consumption Index are examined by the three-stage least square (3SLS) methodology with two equations. The results show that digital banking and financial inclusion positively impact economic growth and household consumption.