Financial Inclusion and Macroeconomic Stability in Eight Southeast Asian Economies

Beta Yulianita Gitaharie(1),

DOI: https://doi.org/10.15294/jejak.v16i2.42201


(1) Department of Economics, Faculty of Economics and Business, Universitas Indonesia

Abstract

More than six in ten people in developing countries in Southeast Asia are unbanked.  It may be for this reason that  ASEAN prioritizes financial inclusion and financial stability. Financial inclusion aims to enlarge the proportion of the population to access and use financial services.   The objectives of this study are to construct financial inclusion index and to investigate the relationship between the constructed index and the macroeconomic stability variables—financial stability, inflation volatility, and output volatility-- in eight Southeast Asian countries for the 2008-2020 period.  The three-dimension—access and availability, usage, and technology/infrastructure-- financial inclusion index is constructed using a double principal component method.  The result shows that Indonesia (0.55) and Lao (0.53) are the two countries with the highest average index for the period.  Employing the panel seemingly unrelated regression, the study finds that financial inclusion has a positive effect on financial stability; and a negative effect on inflation and output volatility.  The finding supports the ASEAN authority to continuously expand financial inclusion as it contributes to increasing financial stability, reducing inflation and output volatility, hence, the macroeconomic stability.

Keywords

Financial Inclusion, Financial Stability, Inflation Volatility, Output Volatility, Macroeconomic Stability, ASEAN

Full Text:

PDF

References

Abdul Karim, Z. et al. (2022). Does Financial Inclusiveness Affect Economic Growth? New Evidence Using a Dynamic Panel Threshold Regression. Finance Research Letters, 46(May), 102364. Available at: https://doi.org/10.1016/j.frl.2021.102364.

Abel, S., Mutandwa, L. & Roux, Le (2018). A review of determinants of financial inclusion. International Journal of Economics and Financial Issues, 8(3), 1–8. Available at: http://www.econjournals.com/index.php/ijefi/article/view/5458.

Agung, J. et al. (2016). Managing monetary and financial stability in a dynamic global environment: Bank Indonesia’s policy perspectives. BIS Paper, 88, 157–188.

Ahamed, M.M. & Mallick, S.K. (2019). Is financial inclusion good for bank stability? International evidence. Journal of Economic Behavior and Organization, 157, 403–427. Available at: https://doi.org/10.1016/j.jebo.2017.07.02.

Ames, B. et al. (2001) Macroeconomic Policy and Poverty Reduction. Available at: https://www.imf.org/external/pubs/ft/exrp/macropol/eng/#2.

Arora, R. (2018). Financial inclusion: understanding concept, barriers and measurement. in E. Mohammed and Z. Uraguchi (eds) Financial inclusion for poverty alleviation: issues and case studies for sustainable development. London: Routledge. Available at: https://www.routledge.com/Financial-Inclusion-for-Poverty%02Alleviation-Issues-and-Case-Studies-for/Mohammed-Uraguchi/%0Ap/book/9781138102767.

Arshad, M.U. et al. (2021). Financial inclusion and monetary policy effectiveness: A sustainable development approach of developed and under-developed countries. PLoS ONE, 16(12 December), 1–19. Available at: https://doi.org/10.1371/journal.pone.0261337.

Aziz, T.A. & McConaghy, (2014) Promoting Financial Inclusion for Growth and Development in Iraq, World bank (MENA knowledge and learning). Available at: https://openknowledge.worldbank.org/bitstream/handle/10986/18154/875490BRI0QN110VC000knowledge0notes.pdf?sequence= (Accessed: 10 September 2022).

Baltagi, B. H. (2021) Econometric Analysis of Panel Data. Sixth, Springer. Sixth. New York: Springer.

Banerjee, R., Donato, R. & Maruta, A. A. (2020) The effects of financial inclusion on development outcomes: New insights from ASEAN and East Asian countries. 342. Available at: https://www.eria.org/publications/the-effects-of-financial-inclusion-on-development-outcomes-new-insights-from-asean-and-east-asian-countries/.

Barik, R. & Pradhan, A. K. (2021). Does financial inclusion affect financial stability: Evidence from BRICS nations?. The Journal of Developing Areas, 55(1). Available at: https://doi.org/10.1353/jda.2021.0023.

Bhattacharyay, B. N. & Bhattacharyay, M. (2022). Financial Sector Development in Brunei Darussalam : Depth , Access , and Efficiency : A Comparative Analysis. 9960. Munich.

Bourainy, M. El, Salah, A. & Sherif, M. El (2021). Assessing the Impact of Financial Inclusion on Inflation Rate in Developing Countries. Open Journal of Social Sciences, 09(01), 397–424. Available at: https://doi.org/10.4236/jss.2021.91030.

Camara, N. & Tuesta, D. (2018). Measuring Financial Inclusion: A Muldimensional Index. in The role of data in supporting financial inclusion policy. IFC Bulletin No. 47, 460–483. Available at: https://www.bis.org/ifc/publ/ifcb47p.pdf.

Cavoli, T., Gopalan, S. & Rajan, R. S. (2020). Does Financial Inclusion Amplify Output Volatility in Emerging and Developing Economies?. Open Economies Review, 31(September), 901–930. Available at: https://doi.org/https://doi.org/10.1007/s11079-019-09568-0.

Cavoli, T. & Shrestha, R. (2020). The Nature and Landscape of Financial Inclusion in Asia. 340. Available at: https://www.eria.org/publications/the-nature-and-landscape-of-financial-inclusion-in-asia/.

Cihak, M., Mare, D.S. & Melecky, M. (2016). The nexus of financial inclusion and financial stability. 7722.

Ekananda, M. (2016). Analisis Ekonometrika Data Panel. 2nd edn. Jakarta: Mitra Wacana Media.

Gálvez-Sánchez, F.J. et al. (2021). Research advances on financial inclusion: A bibliometric analysis. Sustainability (Switzerland), 13(6), 1–19. Available at: https://doi.org/10.3390/su13063156.

Garcia, M.J.R. (2016). Can financial inclusion and financial stability go hand in hand?. Economic Issues, 21(2), 81–103.

Hanivan, H. & Nasrudin, N. (2019). A financial inclusion index for Indonesia. Buletin Ekonomi Moneter dan Perbankan, 22(3), 351–366. Available at: https://doi.org/10.21098/bemp.v22i3.1056.

Hsiao, C. (2022) Analysis of Panel Data, Fourth Edition. 4th edn. Cambridge: Cambridge University Press.

Huang, R. et al. (2021). The nexus between financial inclusion and economic development: Comparison of old and new EU member countries. Economic Analysis and Policy, 69, 1–15. Available at: https://doi.org/10.1016/j.eap.2020.10.007.

Jollife, I. T. & Cadima, J. (2016). Principal component analysis: A review and recent developments. Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences, 374(2065). Available at: https://doi.org/10.1098/rsta.2015.020.

Jungo, J., Madaleno, M. & Botelho, A. (2022). The Relationship between Financial Inclusion and Monetary Policy: A Comparative Study of Countries’ in Sub-Saharan Africa and Latin America and the Caribbean. Journal of African Business, 23(3), 794–815. Available at: https://doi.org/10.1080/15228916.2021.1930810.

Kammoun, S., Ben Romdhane, Y. & Fakhfakh, M. B. S. (2020). Effects of Economic and Political Risks on Foreign Direct Investment. 226–240. Available at: https://doi.org/10.4018/978-1-7998-1730-7.ch012.

Khera, et al. (2021) Measuring Digital Financial Inclusion in Emerging Market and Developing Economies: A New Index. WP/21/90. Available at: https://r.search.yahoo.com/_ylt=AwrKAhFzoG1jr18VroHLQwx.;_ylu=Y29sbwNzZzMEcG9zAzQEdnRpZAMEc2VjA3Ny/RV=2/RE=1668157684/RO=10/RU=https%3A%2F%2Fwww.imf.org%2F-%2Fmedia%2FFiles%2FPublications%2FWP%2F2021%2FEnglish%2Fwpiea2021090-print-pdf.ashx/RK=2/RS=Ezd6WCx.

Le, T. T. et al. (2019). Determinants of financial inclusion: Comparative study of Asian countries. Asian Economic and Financial Review, 9(10), 1107–1123. Available at: https://doi.org/10.18488/journal.aefr.2019.910.1107.1123.

Marcelin, I. et al. (2022). Financial inclusion, bank ownership, and economy performance: Evidence from developing countries. Finance Research Letters, 46(June), 102322. Available at: https://doi.org/10.1016/j.frl.2021.102322.

Matsebula, V. & Sheefeni, J. (2022). Financial Inclusion and Macroeconomic Stability in South Africa. International Journal of Economics and Financial Issues, 12(4), 56–64. Available at: https://doi.org/10.32479/ijefi.13053.

Mehrotra, A. & Yetman, J. (2014) Financial inclusion and optimal monetary policy, BIS Working Papers.

Mialou, A. & Amidzic, G. (2017). Assessing Countries’ Financial Inclusion Standing — A New Composite Index. Journal of Banking and Financial Economics, 2/2017(8), 105–126. Available at: https://doi.org/10.7172/2353-6845.jbfe.2017.2.5.

Morgan, & Pontines, V. (2014). Financial Stability and Financial Inclusion. SSRN Electronic Journal [Preprint], (488). Available at: https://doi.org/10.2139/ssrn.2464018.

Nandi, B. K., Hasan, G. Q. & Kabir, M. H. (2022). A tale of the financial inclusion-growth nexus and the degree of financial inclusion: a dynamic panel approach on selected developing countries. Journal of Financial Economic Policy, 14(3), 381–402. Available at: https://doi.org/10.1108/JFEP-03-2021-0071.

Ngo, A. L. N. (2019). Index of financial inclusion and the determinants: An investigation in Asia. Asian Economic and Financial Review, 9(12), 1368–1382. Available at: https://doi.org/10.18488/journal.aefr.2019.912.1368.1382.

Nguyen, T. D. & Du, Q. L. T. (2022). The effect of financial inclusion on bank stability: Evidence from ASEAN. Cogent Economics and Finance, 10(1). Available at: https://doi.org/10.1080/23322039.2022.2040126.

Nguyen, T. T. H. (2021). Measuring financial inclusion: a composite FI index for the developing countries. Journal of Economics and Development, 23(1), 77–99. Available at: https://doi.org/10.1108/jed-03-2020-0027.

OECD. (2008) Handbook on constructing composite indicators, OECD. Available at: http://www.oecd-ilibrary.org/docserver/download/5lgmz9dkcdg4.pdf?expires=1471336777&id=id&accname=guest&checksum=158391DADFA324416BB9015F3E4109AF.

Omar, M. A. & Inaba, K. (2020). Does financial inclusion reduce poverty and income inequality in developing countries? A panel data analysis. Journal of Economic Structures, 9(1). Available at: https://doi.org/10.1186/s40008-020-00214-4.

Park, C.Y. & Mercado, R. V. (2015). Financial Inclusion, Poverty, and Income Inequality in Developing Asia. 426. Available at: https://www.adb.org/sites/default/files/publication/153143/ewp-426.pdf.

Park, C.Y. & Mercado, R. V. (2018) Financial Inclusion: New Measurement and Cross-Country Impact Assessment. 539. Available at: https://www.adb.org/publications/financial-inclusion-new-measurement-cross-country-impact-assessment.

Park, C. Y. & Mercado, R. V. (2021) Understanding Financial Inclusion: What Matters and How It Matters. 1287. Available at: https://www.adb.org/publications/understanding-financial-inclusion-what-matters-and-how-it-matters.

Pham, M. H. & Doan, T. P. L. (2020). The impact of financial inclusion on financial stability in Asian countries. Journal of Asian Finance, Economics and Business, 7(6), 47–59. Available at: https://doi.org/10.13106/JAFEB.2020.VOL7.NO6.047.

Saha, M. & Dutta, K. D. (2020). Nexus of financial inclusion, competition, concentration and financial stability: Cross-country empirical evidence. Competitiveness Review, 31(4), 669–692. Available at: https://doi.org/10.1108/CR-12-2019-0136.

Sahay, R. et al. (2015) Financial Inclusion: Can It Meet Multiple Macroeconomic Goals? Available at: https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2016/12/31/Financial-Inclusion-Can-it-Meet-Multiple-Macroeconomic-Goals-43163.

Sainani, K. L. (2014). Introduction to principal components analysis. PM and R. Elsevier Inc., 275–278. Available at: https://doi.org/10.1016/j.pmrj.2014.02.00.

Sarma, M. (2008). Index of Financial Inclusion. 215.

Sarma, M. (2012). Index of Financial Inclusion-A measure of financial sector inclusiveness. 07.

Sarma, M. & Pais, J. (2011). Financial inclusion and development. Journal of International Development, 23(5), 613–628. Available at: https://doi.org/10.1002/jid.1698.

Schinasi, G. J. (2004). Defining Financial Stability. Available at: https://www.imf.org/external/pubs/ft/wp/2004/wp04187.pdf (Accessed: 10 November 2022).

Thathsarani, U., Wei, J. & Samaraweera, G. (2021). Financial inclusion’s role in economic growth and human capital in south asia: An econometric approach. Sustainability (Switzerland), 13(8), 1–18. Available at: https://doi.org/10.3390/su13084303.

Tram, T. X. H., Lai, T. D. & Nguyen, T. T. H. (2021). Constructing a composite financial inclusion index for developing economies. Quarterly Review of Economics and Finance [Preprint]. Available at: https://doi.org/10.1016/j.qref.2021.01.003.

Vo, A. N. H. T. H. E. et al. (2019). Financial inclusion and macroeconomic stability in emerging and frontier markets. Annals of Financial Economics, 14(2). Available at: https://doi.org/10.1142/S2010495219500088.

World Bank Global Financial Development Report. (2014). Financial Inclusion. Available at: https://doi.org/10.1596/978-0-8213-9985-9.

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.