Role of Financial Stability in Strengthening the Relationship between Financial Inclusion and Investments in the Jordanian Financial Sector

Abstract

Although it has been shown in the past that expanding access to banking services has positive effects on the economy and poverty reduction, it remains uncertain if doing so also improves bank investment. Although the availability of financial services and the amount of deposit balances have no discernible impact on investment in Jordan's financial sector, the study concludes that financial inclusion is critical for improving the economy and reducing the number of loan accounts. This study is the first to investigate the role of financial instability on the relationship between financial inclusion and investment in Jordan. This research looked at financial inclusion and financial instability as two significant investment drivers. Using a panel analysis, this study will look at the Jordanian financial sector from 2017 to 2021 to see how financial stability affects the relationship between financial inclusion and investment. A dynamic panel approach using the System GMM was used in the research. The research showed that financial inclusions have a major and negative effect on financial sector investment in Jordan. However, financial inclusions have had a substantial and favourable effect on investment in Jordan's financial industries. Investments in Jordan's banking system have a closer connection to financial inclusion because of the country's history of financial instability. With this information in hand, officials in Jordan can shift their attention to providing accessible, low-cost financial services to back loans and new ventures for small- and medium-sized enterprises. The report can also help Jordanian policymakers and regulators reach the goals of Jordanian national strategy for financial inclusion. Keywords: financial stability, financial inclusion, investments, Jordanian financial sector, system GMM. https://doi.org/10.55463/issn.1674-2974.50.4.3