Abstract
This paper examines how increased financial inclusion fosters an inclusive banking sector and capital market, and whether they in turn promote more financial inclusion in emerging markets. The System-GMM technique and Panel Granger Causality Test were employed for the analyses. The paper provides empirical evidence that financial inclusion enhances the banking sector, the bond and stock markets inclusiveness. Besides, the Panel Granger Test results show a uni-causality linkage for banks and the stock market, while it confirmed a bi-causality linkage between banks and the bond market in emerging markets. It concludes that increased financial inclusion promotes inclusive banks and capital markets, but the reverse does not apply to the stock market. The findings imply that greater financial inclusion is needed in building inclusive banks and capital markets in emerging markets. Their policy-makers must not ignore the large local population and enterprises when mobilising savings, capital resources and allocating credit facilities.
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