Nonlinear relationship between financial inclusion and inclusive economic development in developed economies: evidence from panel smooth transition regression model

Abstract

PurposeThe purpose of this study is to investigate the nonlinear association between financial inclusion and inclusive economic growth (IEG) in developed economies. A Block of G7 countries (Germany, Japan, Canada, France, Italy, the UK and the US) are considered in this study.Design/methodology/approachFor analysis, the authors have employed the “Panel Smooth Transition Regression model.” Annual data consists of the period from 1995 to 2019.FindingsThis research makes a unique contribution to literature with reference to G7 countries, being a pioneering attempt to apply the panel threshold regression model to analyze the relationship between financial inclusion and IEG by applying more rigorous and advanced econometric techniques.Originality/valueThe results indicate that total labor force available in a country, gross fixed capital formation and financial inclusion are positive and significant in lower regimes, but as it moves toward the higher regime, the labor force available in a country becomes less impactful. However, an increase has been observed in financial inclusion in the higher regime. The complete sample generally exhibits a positive yet significant relationship between financial inclusion and inclusive economic development.