The Impact of Digital Financial Inclusion on Economic Growth: Evidence from Developing Economies

Abstract

This study examines the impact of digital financial inclusion on economic growth in developing economies using panel data analysis of 67 countries from 2011 to 2021. Employing fixed effects regression and dynamic panel System GMM estimation, the research investigates whether digital financial services promote economic development through enhanced financial access and usage. The empirical results demonstrate that digital financial inclusion has a positive and statistically significant effect on GDP per capita growth. A 10-point increase in the Digital Financial Inclusion Index is associated with a 0.68 percentage point increase in annual economic growth, representing a 20% increase in the growth rate. The findings are robust to endogeneity concerns and alternative specifications. Heterogeneity analysis reveals that the impact is strongest in Sub-Saharan Africa and low-income countries, suggesting digital financial inclusion is particularly valuable where traditional financial infrastructure is limited. These results support theoretical predictions from the finance-growth nexus literature and have important policy implications for developing countries seeking to promote economic development through digital financial strategies, infrastructure investment, and regulatory reform.