Does Financial Inclusion Amplify Output Volatility in Emerging and Developing Economies?

Tony Cavoli (), Sasidaran Gopalan and Ramkishen Rajan
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Tony Cavoli: University of South Australia

Open Economies Review, 2020, vol. 31, issue 4, No 7, 930 pages

Abstract: Abstract This paper empirically investigates if, in what direction, and under what circumstances financial inclusion amplifies or moderates output volatility, which is a matter of concern for monetary policymakers in emerging and developing economies (EMDEs). The empirical estimation for a large panel of over 100 EMDEs spanning the period 1995 to 2013 finds a strong and persistent trade-off between higher financial inclusion and output stability. The paper also finds strong and robust evidence of non-linearity governing this relationship. Countries with high degrees of financial inclusion as well as those that are relatively lower income tend to experience a significant trade-off between financial inclusion and output stability. Further, the paper also finds that reckless financial inclusion coinciding with excessive credit growth tends to worsen output volatility.

Keywords: Financial inclusion; output volatility; credit growth; emerging and developing economies; panel data (search for similar items in EconPapers)
JEL-codes: E32 E44 O11 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:31:y:2020:i:4:d:10.1007_s11079-019-09568-0

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DOI: 10.1007/s11079-019-09568-0

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