Impact of Financial Inclusion on Economic Development

Abstract

This research was carried out in an attempt to quantify the relationship that financial inclusion has with economic development. The research identified six different indicators of financial inclusion. These indicators have been indented as such in the historical research. Using these six different indicators, an index of financial inclusion was calculated which gives a measure of the overall financial inclusion level within Pakistan from year 2004 to 2014. After calculating this index of financial inclusion, this index was regressed with different measures of economic development. These economic indicators have been as such in historical research. The individual indicators of financial inclusion were separately regressed with individual indicators of economic development to establish and quantify a relationship not only between the financial inclusion and economic development but also establish and quantify a relationship between individual indicator of financial inclusion and individual indicator of economic development. The results show a positive significant relationship exists between financial inclusion and majority of the indicators of economic development. The results show that financial inclusion does not hold any significant relationship with inflation. Moreover, results show that the availability indicators and penetration indicators of the financial inclusion hold a more significant relationship with economic development as compare to the usage dimension indicators of the financial inclusion. The research shows us that the financial inclusion not only does result in increased economic development at macro level but also improve the actual living standards of the general population.