Impact of financial inclusion on economic growth in secular and religious countries
| Date | 08 February 2023 |
| Pages | 420-444 |
| DOI | https://doi.org/10.1108/JFRC-08-2022-0093 |
| Published date | 08 February 2023 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation |
| Author | Peterson K. Ozili,Sok Heng Lay,Aamir Aijaz Syed |
Impact of financial inclusion on
economic growth in secular and
religious countries
Peterson K. Ozili
Governors Department, Central Bank of Nigeria, Abuja, Nigeria
Sok Heng Lay
Economic Research and International Cooperation Department,
National Bank of Cambodia, Phnom Penh, Cambodia, and
Aamir Aijaz Syed
Institute of Management, Commerce and Economics,
Shri Ramswaroop Memorial University, Lucknow, India
Abstract
Purpose –Empirical research on the relationship between financial inclusion and economic growth has
neglected the influence of religion or secularism. This study aims to investigate the effect of financial
inclusionon economic growth in religious and secularcountries.
Design/methodology/approach –The financial inclusionindicators are the number of automated teller
machines (ATMs)per 100,000 adults and the number of bank branches per 100,000 adults. These two
indicators are the accessibilitydimension of financial inclusion based on physical points of service.The two-
stage least square(2SLS) regression method was used to analyze the effectof financial inclusion on real gross
domesticproduct (GDP) per capita growth and real GDP growth in religiousand secular countries.
Findings –Bank branch contraction significantly increases economic growth in secular countries. Bank
branch expansioncombined with greater internet usage increaseseconomic growth in secular countries while
high ATM supplycombined with greater internet usage decreaseseconomic growth in secular countries. This
study also finds that bank branchexpansion, in the midst of a widening poverty gap, significantlyincreases
economic growth in religious countries,implying that financial inclusion through bank branchexpansion is
effective in promoting economicgrowth in poor religious countries. It was also found that internet usage is a
strong determinantof economic growth in secular countries.
Originality/value –Few studies in the literature examined the effect of financial inclusion on economic
growth. But the literaturehas not examined how financialinclusion affects economic growth in religious and
secularcountries.
Keywords Financial inclusion, Economic growth, ATMs per 100,000 adults,
Bank branches per 100,000 adults, Poverty, Internet usage, Access of finance, Religion,
Religious countries, Secular countries, Economic development, Financial intermediaries,
Financial institutions
Paper type Research paper
1. Introduction
This paper investigates the impact of financial inclusion on economic growth in religious
countries and secular countries. Financial inclusion is the process of bringing unbanked
adults into the formal financial sector so that they can have access to affordable formal
financial services (Ozili, 2018). Financial inclusion improves access to finance which
JFRC
31,4
420
Received7 August 2022
Revised29 November 2022
12January 2023
Accepted13 January 2023
Journalof Financial Regulation
andCompliance
Vol.31 No. 4, 2023
pp. 420-444
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-08-2022-0093
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1358-1988.htm
increases consumption, productionand investment, thereby leading to increase in economic
output and higher economic growth (Erlando et al., 2020). Few studies have empirically
examined the effect of financial inclusion on economic growth (Sethi and Acharya, 2018;
Erlando et al., 2020;Ozili et al., 2022a). But there is little evidence on this relationship in
religious settings.
Understanding the effect of financialinclusion on economic growth in religious countries
and secular countries is important becausea growing body of research show that religiosity
has an effect on the workings of the economic system and can affect aggregate economic
outcomes. There is the argument that people in religious countries incorporate their
religious beliefs into their personal and business lives and it influences them to be moral,
upright and less corrupt when conducting economic activities which in turn enhances
economic growth (Chase, 2014). Empirical evidence supports this claim. For instance,
Galbraith and Galbraith (2007) examine the relationship between intrinsic religiosity and
economic growth. They examine 23 religious Christian countries and find that intrinsic
religiosity is positively related to economicgrowth, which suggests that intrinsic religiosity
increases entrepreneurial activity, and entrepreneurial activity then results in economic
growth. McCleary and Barro (2003) investigate the effect of religious beliefs on economic
growth. They show that religious beliefs influence individual economic decision-making
which improves economic performance.However, Chase (2014) found that higher religiosity
did not lead to positive economic growth. Although the literature documents a positive
impact of religiosity on economic growth, there is little evidence for the impact of financial
inclusion on economicgrowth in religious countries and in comparison to secularcountries.
Our study is related to studies that examine the relationshipbetween financial inclusion
and economic growth in non-religioussettings such as Sethi and Acharya (2018),Ratnawati
(2020),Erlando et al. (2020),Ozili (2021a) and Van et al. (2021). These studies draw
conclusions that cannot be generalized to religious countries. Other studies have examined
the effect of financial inclusion on economic growth in Islamic countries (such as Banna
et al.,2020;Adzimatinur and Manalu, 2021). But these studies focus on a monotheistic
religion, Islam, which is not representative of all the major religions in the world. This
creates a need for studies that examine the relationship between financial inclusion and
economic growth in a morerepresentative religious setting that takes intoaccount the major
religions and in comparison to secular countries. Such studies can provide insight that can
be generalized to all religious countries.Although existing studies have examined the effect
of financial inclusion on economicgrowth among Islamic financial institutions, these studies
did not compare religious Islamic countries with secular countries to determine whether
religiosity or secularism influences the relationship between financial inclusion and
economic growth. To date, no study has investigated the relationship between financial
inclusion and economic growth in a religious countrygroup and in comparison to a secular
country group, and no comparative analysis across the two groups has been done in the
literature. In this paper, we address this issue by focusing on the impact of financial
inclusion on economicgrowth in religious countries and secular countries.
In this paper, we focus on whether financial inclusion promotes economic growth in
religious countries relative to secular countries. Consistent with the findings of Ji (2020),we
predict that religiosity or religious beliefs can significantly affect the adoption of formal
financial services which in turn willaffect the level of financial intermediation and the level
of economic activities thereby affecting economic growth. We also predict that secularism
will significantlyaffect the adoption of formal financial services which will affect the level of
financial intermediation and the level of economic activities, thereby affecting economic
growth.
Impact of
financial
inclusion
421
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
