Financial inclusion as an enabler of economic growth: Does financial stability matter?

Abstract

Purpose This study aims to examine the moderating role of financial stability in the effect of financial inclusion on economic growth. While financial inclusion is hailed for its potential to stimulate economic growth, excessive inclusion or stability may yield adverse effects. The study seeks to clarify how the interaction of financial inclusion and stability moderates economic outcomes and to offer policy insights for fostering inclusive and stable financial systems conducive to growth. Design/methodology/approach The study employs panel data analysis for 62 countries across diverse income levels and regions. Using robust econometric methods, the analysis evaluates the individual and interactive effects of financial inclusion and financial stability on economic growth. Findings The results reveal that financial inclusion and financial stability, when analyzed individually, may negatively impact economic growth in certain conditions. Excessive financial inclusion can lead to over-indebtedness, while overly restrictive stability measures may stifle innovation and credit access. However, the interaction between inclusion and stability yields a positive and significant effect on growth. Originality/value This study contributes to the literature by highlighting the dual role of financial stability as a moderator of the financial inclusion–growth nexus. Unlike prior studies that emphasize standalone effects, it underscores the complementary nature of inclusion and stability. The findings provide actionable policy recommendations to foster inclusive and stable financial systems while addressing risks associated with over-indebtedness and inefficient resource allocation.