TITLE:
Assessing the Impact of Financial Inclusion on Inflation Rate in Developing Countries
AUTHORS:
Mehry El Bourainy, Ashraf Salah, Marwa El Sherif
KEYWORDS:
Financial Inclusion, Developing Countries, Inflation Rate, PCA, System GMM
JOURNAL NAME:
Open Journal of Social Sciences,
Vol.9 No.1,
January
28,
2021
ABSTRACT: Interest in promoting financial inclusion has increased dramatically in recent
years all over the world. The aim of this study is to empirically assess the impact of financial
inclusion on the inflation rate in 37 developing countries for a period of 10
years from 2009 to 2018. Initially, Principal Component Analysis (PCA) has been
utilized to construct a new multidimensional Financial Inclusion Index (FII)
using three dimensions; access, usage, and quality of financial services. Next, 2 step system, Generalized Method of Moments (GMM) was applied to assess the impact of
financial inclusion on the inflation rate empirically. The study
established that an increased level of financial inclusion has an impact on
decreasing the inflation rate in developing countries. It was also found that interest r and official reserves
have a significant positive impact on inflation rate. These findings recommend
that the policymakers in developing
countries should consider financial inclusion as a tool for decreasing
the inflation rate and accordingly boost the level of financial inclusion in
their countries. Broadening financial inclusion to the informal sector and the
rural areas could help in promoting the status of financial inclusion in
developing countries.