Open AccessDoes the Quality of Institutions Matter for Financial Inclusion? Cross Country Evidence
Author(s) -
Peter Muriu
Publication year - 2021
Publication title -
international journal of economics and finance
Language(s) - English
Resource type - Journals
eISSN - 1916-9728
pISSN - 1916-971X
DOI - 10.5539/ijef.v13n7p27
Subject(s) - financial inclusion , proxy (statistics) , inclusion (mineral) , context (archaeology) , empirical evidence , quality (philosophy) , panel data , business , financial system , accounting , economics , public economics , financial services , finance , econometrics , geography , gender studies , philosophy , archaeology , epistemology , machine learning , sociology , computer science
Despite evidence on the importance of financial inclusion, little is known about the role of institutions in fostering inclusion partly because of data availability. Using annual data corresponding to 120 countries for the period 2004-2019, this study investigates country institutional characteristics associated with the ownership of deposit accounts. A standard regression model is estimated using fixed effects panel data techniques along with financial inclusion proxy and three measures of institutional quality. This paper provides the first empirical justification that financial inclusion is non-negligibly driven by the institutional context. Specifically, rule of law and quality of regulations are crucial in enhancing financial inclusiveness, more so in Africa where they have a stronger effect relative to other regions. Banks and depositors in Africa may be operating in an environment characterized by weak legal systems and excessive or challenging regulations. The evidence presented in this paper may therefore help with the sequencing of institutional reforms that could promote financial inclusion.