Financial inclusion and sustainable development: a cross-country analysis

Yap, Shen (2023) Financial inclusion and sustainable development: a cross-country analysis. Master dissertation/thesis, UTAR.

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Abstract

As part of the financial inclusion continuum, insurance is identified as an instrument advancing financial inclusion by allowing individuals to access instruments that safeguard their lives, health, and assets. In the limited studies that incorporated insurance in their financial inclusion measure, the effects of life and non-life insurance are undistinguished. In addition, there is growing awareness in relation to the interconnection between financial inclusion and sustainable development. This research aims to bridge the research gap by computing a financial inclusion index consisting of life and non-life insurance altogether with traditional banking indicators. Hence, this study investigates the impact of financial inclusion on 7 finance-related aspects of Sustainable Development Goals (SDG) as outlined by the World Bank. They are eradicating poverty (SDG1); ending hunger and promoting sustainable agriculture (SDG2); promoting health and well-being (SDG3); achieving gender equality and economic empowerment of women (SDG5); promoting economic growth and jobs (SDG8); supporting industry, innovation, and infrastructure (SDG9); and reducing inequality (SDG10). Firstly, this study computes a multidimensional financial inclusion index (FI index) incorporating banking, life, and non-life insurance indicators for 78 countries from 2015 to 2019 using an Euclidean distance method.Secondly, the study examines the relationship between financial inclusion and sustainable development in the sample countries from 2017 to 2019 through panel regression models. The difference in the sample period for computation of the financial inclusion index (2015 – 2019) and cross-estimations (2017 – 2019) is due to the SDG data being available only from 2017, whereas the longer period for the FI index is meant to illustrate its five years trend for research objective 1. The FI index reveals higher financial inclusion in high-income countries in the European region as compared to that of medium-income countries in the Asian and African regions. When life insurance indicators are taken into account, some countries leapfrog in their financial inclusion levels, whereas most countries witness a drop in their financial inclusion level. Meanwhile, non�life insurance appears to have a more prominent impact on overall financial inclusivity in the sample countries. The findings from the first objective indicate a lack of contribution of the insurance to financial inclusion, especially life insurance.

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