The Impact of Financial Inclusion on Economic Growth:
ARDL Approach
SHATHA YOUSEF ABDEL KHALEQ1, RUBA NIMER ABU SHIHAB2*
1Al-Zaytoonah University of Jordan,
JORDAN
2Al-Balqa Applied University,
JORDAN
*Corresponding Author
Abstract: - This study investigates the impact of financial inclusion on economic growth in Jordan from 2000 to
2021. Employing an Autoregressive Distributed Lag (ARDL) approach, we examined the temporal relationship
between financial inclusion indicators and economic growth. Our analysis reveals a bidirectional causality,
indicating that financial inclusion not only propels economic growth but is also bolstered by it. The findings
challenge the initial hypothesis of a unidirectional relationship, suggesting a more intricate interaction between
financial inclusion and economic prosperity in emerging economies. The Granger causality test results
significantly support the notion of mutual reinforcement between these variables. This study contributes to the
empirical literature by highlighting the symbiotic relationship within the Jordanian context and suggests that
enhancing financial inclusion can be a strategic tool for sustainable economic development. The research also
underscores the need for considering environmental implications and the burgeoning digital financial services
sector in future policy-making. Suggested future research includes comparative regional studies, incorporation
of qualitative methods, and exploration of the environmental impacts of financial inclusion. The study's
conclusions are instrumental for policymakers and stakeholders in crafting informed strategies to leverage
financial inclusion for economic growth.
Key-Words: - Financial Inclusion, Economic Growth, Economic Vulnerabilities, Jordan, Employing an
Autoregressive Distributed Lag (ARDL), Augmented Dickey-Fuller (ADF).
Received: June 26, 2023. Revised: November 2, 2023. Accepted: December 2, 2023. Available online: December 22, 2023.
1 Introduction
Financial inclusion has recently garnered significant
attention on a global scale, becoming a focal point
of investigation across various countries. This surge
in interest can be attributed to the remarkable
progress in software and communication
technologies. These advancements have not only
facilitated but also accelerated financial inclusion by
giving rise to innovative financial services such as
mobile money and agent-mediated banking services.
By eliminating previous obstacles, these novel
solutions have substantially improved access to
financial services, especially for historically
underserved populations.
Amid this backdrop, the imperative of
expanding financial inclusion has gained
prominence, particularly in light of the pervasive
challenges like poverty, hunger, unemployment, and
limited access to education and healthcare that
afflict Arab countries. In response, the significance
of broadening financial inclusion has become more
pronounced, with multiple studies highlighting its
positive influence on overall economic growth and
the creation of employment opportunities. As a tool
for sustainable economic development, financial
inclusion holds the potential to empower
marginalized social groups and invigorate small and
medium enterprises. Moreover, its alignment with
13 out of the 17 Sustainable Development Goals
outlined by the United Nations for 2030 underscores
its global relevance and impact.
This study embarks on an exploration of the
intricate relationship between financial inclusion
and economic growth, focusing specifically on
Jordan—an area that has been subject to limited
research on this subject. Hence, this study aims to
rigorously investigate the impact of financial
inclusion on economic growth in Jordan, utilizing an
Autoregressive Distributed Time Lags (ARDL)
approach. This objective is pursued within the
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Shatha Yousef Abdel Khaleq,
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context of the period between 2000 and 2021, a
timeframe critical for observing the evolution and
effects of financial inclusion initiatives within the
country.
Central to the investigation is the potential
impact of financial inclusion on the trajectory of
economic growth within the country. The central
question that this research seeks to answer is
whether financial inclusion indeed plays a role in
shaping Jordan's economic growth.
Given the scarcity of comprehensive studies
examining the correlation between financial
inclusion and economic growth within Jordan and
similar contexts, this research acquires heightened
significance. By delving into this unexplored terrain,
the study aims to shed light on this critical
connection.
In terms of methodology, this study adopts the
Autoregressive Distributed Time Lags (ARDL)
model as its analytical framework. The ARDL
model's selection is motivated by its ability to
dissect the interplay between financial inclusion
indicators and the rate of economic growth. By
facilitating the assessment of how financial
inclusion unfolds over time and its eventual impact,
the ARDL model provides a robust methodological
foundation. The study's quantitative approach draws
upon data from reputable institutions including the
International Monetary Fund, the World Bank, and
the Central Bank of Jordan. The chosen timeframe
for analysis spans from 2000 to 2021, an interval
considered both suitable and relevant for the ARDL
model's application.
Within this methodological context, the study
sets forth two hypotheses for exploration:
1. Over the studied period, there is no enduring
relationship between financial inclusion and
the rate of economic growth in Jordan.
2. Throughout the designated timeframe, no
discernible causal relationship exists between
the financial inclusion index and the rate of
economic growth.
These hypotheses serve as the bedrock for the
study's empirical investigation, leveraging the
ARDL model to rigorously examine the interplay
between financial inclusion and economic growth
within the unique socio-economic landscape of
Jordan. Ultimately, the research aims to contribute
nuanced empirical insights that either validate or
challenge these hypotheses, offering a deeper
understanding of the dynamics at play. In doing so,
it endeavors to enrich the scholarly discourse
surrounding the relationship between financial
inclusion and economic growth in the specific
context of Jordan, thereby filling a significant gap in
the existing body of knowledge.
The subsequent sections of this study are
structured as follows. The Literature Review will
delve into relevant research concerning financial
inclusion and economic growth. Subsequently, the
Methodology section will detail the application of
the Autoregressive Distributed Time Lags (ARDL)
model. In the Data Analysis and Discussion
segment, we will present and interpret the outcomes,
elucidating the interconnection between financial
inclusion and economic growth in Jordan. Finally,
the Conclusion will encapsulate our findings,
contributions, and potential avenues for future
research.
2 Literature Review
The relationship between financial inclusion and
economic growth has been a focal point of
numerous studies. In the study, [1], the author
posited that a robust financial system can mitigate
information asymmetry and transaction costs,
thereby catalyzing economic growth. This sentiment
was echoed by, [2], who underscored the dual
benefits of financial inclusion: spurring economic
growth and diminishing poverty. They further noted
its role in tempering income inequality. Financial
inclusion, as, [3], elucidated, bolsters economic
growth by fostering value creation for small
enterprises and enhancing human development
metrics, such as health, education, and food
security.
The nexus between financial inclusion and
economic growth is predominantly channeled
through financial development. The primary
beneficiaries of this relationship are the financially
marginalized, who gain access to formal financial
instruments like savings, credit, and insurance, [4].
In, [5], the authors further elaborated on the
determinants of financial inclusion/exclusion,
highlighting individual factors such as gender, age,
literacy, proximity to financial services, and
psychological and cultural considerations.
The contemporary discourse has evolved to
encompass financial innovation alongside traditional
financial inclusion paradigms. In, [6], the authors
delved into the ramifications of financial inclusion
on Nigeria's economic growth, emphasizing the
interplay of financial innovation and customer
engagement in crafting sustainable institutional
frameworks. They advocated for relentless
innovation in financial offerings to cater to shifting
demands and stimulate economic growth.
Concurrently, in, [7], the authors probed the
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interlinkages between financial inclusion and
macroeconomic stability, cautioning that unchecked
credit proliferation, devoid of stringent oversight,
can escalate financial perils and undermine
macroeconomic equilibrium.
Recent studies have further enriched this
discourse. For instance, in, [8], the authors analyzed
the interplay between digital financial inclusion and
economic growth, focusing on provincial data from
China. In addition, in, [9], the authors conducted a
cross-country study, emphasizing the transformative
potential of digital financial inclusion on economic
growth, [9].
In summation, the literature accentuates the
pivotal role of financial inclusion in driving
economic growth, alleviating poverty, and
enhancing societal welfare. As the landscape of
financial inclusion undergoes continuous
metamorphosis, with a pronounced tilt towards
financial innovation, its capacity to invigorate
economic growth and reshape financial ecosystems
remains a critical area of exploration for
policymakers and scholars.
2.1 The Concept of Financial Inclusion
In the wake of the 21st century, the concept of
financial inclusion has emerged as a pivotal
cornerstone in the global financial landscape. Since
its inception in 2000, it has rapidly evolved into a
shared objective for central banks and governments,
especially in developing countries. The Center for
Financial Inclusion in Washington offers one of the
most widely accepted definitions, describing
financial inclusion as a state wherein all individuals
can access a comprehensive suite of high-quality
financial services at affordable prices, all the while
maintaining their dignity. This access is particularly
emphasized for marginalized groups, including the
impoverished, rural communities, and other
financially underserved populations.
At its core, financial inclusion signifies that
adults are not only able to access appropriate
financial services but can also utilize them to their
fullest potential. This begins with the fundamental
step of having a deposit or transaction account with
a recognized bank or financial institution, [2].
Echoing this sentiment, the Central Bank of Jordan
encapsulates financial inclusion as a scenario where
both individuals and businesses can access a diverse
array of financial services tailored to their unique
needs, thereby elevating their standard of living
securely and sustainably.
The overarching importance of financial
inclusion is evident in its widespread endorsement
by numerous countries. Recognized as a catalyst for
economic growth, it augments financial efficiency
and ameliorates the living standards of its
beneficiaries, especially those grappling with
poverty. Furthermore, it provides a robust solution
to the myriad challenges that regulators face, as
underscored by the International Monetary Fund in
2015.
Conversely, the repercussions of financial
exclusion are manifold. It leads to a decline in
savings and investment, escalates unemployment
and inflation rates, and imposes exorbitant costs.
The ripple effects extend to limited access to
essential financial products, a waning awareness of
banking among citizens, and a surge in corruption,
crime, and poverty rates. This exclusionary state
also stifles the growth of the private sector, weakens
the economic fabric, and compromises the
adaptability of financial and banking systems,
especially in the face of rapid technological
advancements.
Highlighting the strategic nature of financial
inclusion, the authors in, [10], posit that it is a
marathon, not a sprint. To realize its objectives, it is
imperative to focus on specific areas that demand
attention. In tandem with this, recent literature
underscores the environmental ramifications of
financial inclusion, advocating for sustainable
financial practices that are environmentally
conscious, [11], [12].
As the global momentum to amplify financial
inclusion intensifies, there is a concerted push
towards establishing cohesive mechanisms and
fostering collaborations between international
financial entities. The Consultative Group to Assist
the Poor, an affiliate of the World Bank, champions
the creation of an all-encompassing financial system
as the sole avenue to reach the economically
disadvantaged, thereby fulfilling the tenets of
financial inclusion.
This group delineates three primary challenges in
the journey toward achieving financial inclusion:
1. Scale: Augmenting the quality of financial
services to cater to a broader clientele.
2. Depth: Expanding outreach to include the
most marginalized and economically
challenged individuals.
3. Cost: Streamlining operations to reduce costs
for both financial institutions and their
patrons.
By surmounting these challenges, financial
inclusion can profoundly elevate the socio-
economic trajectory of the underserved, granting
them access to indispensable financial services and
spurring sustainable economic growth. The advent
of digitalization has further accentuated the role of
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digital financial inclusion in propelling economic
growth and championing environmental
sustainability, underscoring the imperative to weave
technology into the tapestry of financial inclusion
strategies, [13], [14]
In summation, financial inclusion stands as a beacon
of hope in the financial realm, promising a brighter,
more inclusive future for all. Its multi-dimensional
approach, focusing on accessibility, effective
utilization, and service quality, ensures that it
remains a transformative force in the global
financial ecosystem.
2.2 Utilization of Financial Services
The dimension of using financial services focuses
on the extent and depth of individuals' engagement
with the financial services provided by banking
sector institutions. Determining usage requires
collecting data on the regularity, frequency, and
extent of usage over a specific period. Recent
studies have highlighted the importance of
measuring access, quality, and usage of financial
products and services in different regions,
emphasizing the significance of financial inclusion
in overall economic development, [15].
Developing indicators to gauge the quality of
financial inclusion poses an important and intriguing
challenge. Over the past 15 years, the concept of
financial inclusion has gained prominence on the
agendas of developing countries, where widespread
financial exclusion necessitated improved access to
financial services, [16]. Access to financial services
remains a varying problem across countries and the
types of financial services offered.
Ensuring the quality of provided financial
services presents a challenge that demands diligent
study, measurement, comparison, and action based
on concrete evidence regarding service quality.
Numerous factors influence the quality of financial
services, including service costs, fund security,
transparency, market competition, consumer
awareness, as well as the effectiveness of
compensation mechanisms and consumer protection
services, [17].
2.3 Jordan's Pursuit of Financial Inclusion
In pursuit of comprehensive and sustainable growth,
Jordan recognizes the pivotal role of financial
inclusion in the Kingdom. The government has
prioritized the development of a robust
infrastructure and the establishment of legislative
frameworks to foster an inclusive financial system.
Spearheaded by the Central Bank of Jordan and
supported by public and private sector partners,
several major initiatives have been undertaken to
promote financial inclusion.
Aligned with the national agenda and strategic
directions, the national strategic vision for financial
inclusion in Jordan revolves around five key axes:
financial education, financial consumer protection,
support for small and medium enterprises,
microfinance services, and digital payments. The
formulation of this strategy is underpinned by data
collection, analysis, and measurement to establish
evidence-based policies and objectives, thus
ensuring accurate implementation and a clear vision
for each axis, [18].
The impetus for developing a national strategy
for financial inclusion arises from the fact that the
financial inclusion rate for adults in Jordan is
comparatively low, standing at 24.60%, even though
it is relatively higher than that of peer countries in
the Middle East and North Africa region. This
situation highlights the exclusion of a majority of
adults from formal financial systems and their
inability to participate actively in and benefit from
the economic development process.
The strategy prioritizes the inclusion of
marginalized and financially underserved groups,
including low-income adults, micro, small, and
medium enterprises, youth, women, non-Jordanians,
and refugees. It aims to establish and strengthen the
link between financial inclusion and the United
Nations General Assembly's sustainable social
development goals for 2030.
Gender equality is a focal point in the National
Strategy for Financial Inclusion, aiming to enhance
the financial inclusion of women and address the
gender gap, a challenge prevalent in many
developing countries, [19].
The Central Bank of Jordan has focused on
developing a modern, secure, and efficient national
payment system, which forms a crucial part of the
financial system's infrastructure. Efforts have been
made to reduce costs and risks while increasing
access and efficiency in payment systems to offer
diverse digital financial services.
Small and medium-sized enterprises (SMEs)
play a vital role in Jordan's economic growth and
job creation, [20]. However, they face challenges in
accessing necessary financing. The National
Strategy for Financial Inclusion aims to provide
opportunities for these companies to access financial
services through action programs developed and
implemented in collaboration with relevant partners.
The strategy also addresses the importance of
responsible provision of financial services, financial
consumer protection, and the promotion of financial
literacy, [21]. An action plan for financial consumer
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protection and financial education programs has
been initiated.
Jordan emphasizes the significance of data and
measurement in enhancing financial inclusion and
formulating evidence-based policies to support this
process. Efforts have been directed toward
strengthening national statistical capabilities to
provide reliable and continuous data sources to
improve data quality, [22].
The implementation of the National Strategy for
Financial Inclusion seeks to strike a balance
between four main objectives: financial inclusion,
financial stability, financial sector integrity, and
financial consumer protection (ISIP). Additionally,
the strategy pays close attention to innovative
approaches and keeps abreast of technological
advancements to foster financial inclusion for all in
line with international principles and the G20
countries' action plan for innovative financial
inclusion.
Given the emphasis on the utilization of
financial services and the quality of these services, it
can be hypothesized that regions or countries that
prioritize and improve the quality and accessibility
of their financial services will experience a
significant increase in financial inclusion rates. This
hypothesis is grounded in the argument that as
individuals find financial services more reliable,
transparent, and user-friendly, their engagement
with these services will naturally increase, leading
to higher financial inclusion. Thus, we hypothesize
the following:
Ho1: There is no long-term relationship between
financial inclusion and the rate of economic growth
in Jordan over the study period.
Moreover, drawing from the detailed discussion
on Jordan's national strategy for financial inclusion,
it can be hypothesized that countries with a well-
defined, data-driven, and inclusive national strategy
will witness a more substantial rise in their financial
inclusion rates, [23]. This hypothesis suggests that a
holistic approach, which encompasses financial
education, consumer protection, support for SMEs,
and digital payment systems, will have a more
significant impact on financial inclusion than
isolated initiatives. Thus, we hypothesize the
following:
Ho2: There is no causal relationship between the
financial inclusion index and the rate of economic
growth during the study period.
3 Research Methodology
This study employs a rigorous methodological
approach to investigate the nexus between financial
inclusion and economic growth, specifically within
the context of Jordan, covering the period from
2000 to 2021. The methodology is grounded in
contemporary research paradigms and is informed
by recent empirical findings.
Central to our analysis is the Autoregressive
Distributed Time Lags (ARDL) model. This model
is renowned for its capacity to capture the dynamic
interrelationships between variables over time,
making it particularly apt for analyzing the intricate
interplay between financial inclusion indicators and
economic growth, [24]. The ARDL model's
versatility allows for the dissection of both short-
term and long-term effects, providing a
comprehensive understanding of how financial
inclusion evolves and its consequent impact on
economic growth, [25].
The study's model is inspired by prior research
(Onaolapo, 2015; Karo, 2016) and is articulated as:
LnRGDP = β0 + β1 LnDRBD + β2 LnLRBD + β3
LnLDR+ U
where:
LnRGDP: Logarithm of real GDP.
LnDRBD: Logarithm of household sector current
deposits in commercial banks.
LnLRBD: Logarithm of the volume of loans owed by
the household sector to commercial banks.
LnLDR: Logarithm of the net lending/borrowing
ratio.
The ARDL model's efficacy lies in its ability to
discern the existence of a long-term equilibrium
relationship between the variables. The Wald test, a
robust statistical tool, is utilized to ascertain this
relationship, [26]. The null hypothesis posits the
absence of cointegration, while the alternative
hypothesis suggests its presence.
The variables are as previously defined. To
further refine the analysis, the study employs the
Unrestricted Error Correction Model (UECM) to
test the cointegration relationship between variables,
a technique advanced by [27], and further validated
by recent studies, [28].
The empirical analysis is underpinned by data
sourced from esteemed institutions, including the
International Monetary Fund, the World Bank, and
the Central Bank of Jordan. The data spans from
2000 to 2021, a period deemed optimal for the
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ARDL model's application and in line with recent
research recommendations, [29], [30].
Table 1. Augmented Dickey-Fuller Test Results for
Stationarity
4 Data Analysis
Before delving into the ARDL model's application,
it's imperative to ensure the time series data's
stationarity. Stationarity is a crucial prerequisite for
many time series econometric models, including
ARDL. The Augmented Dickey-Fuller (ADF) in
Table 1 test is a widely used method to test for the
presence of unit roots in a univariate time series,
which would suggest non-stationarity.
In preparing to assess the long-term and causal
relationships between financial inclusion and the
rate of economic growth in Jordan, the time series
properties of the variables were first examined using
the Augmented Dickey-Fuller (ADF) test. This
preliminary analysis is pivotal to ensuring the
appropriateness of subsequent econometric
techniques, such as the ARDL model. The results
reveal that the logarithm of real GDP (LNGDP) is
stationary at the 5% significance level, as indicated
by a test statistic of -3.865, which is more negative
than the critical value at this level. Similarly, the
logarithm of household sector current deposits in
commercial banks (LNDRBD) demonstrates
stationarity, closely aligning with the 5% critical
value with a test statistic of -3.722. This is further
underscored by a notably low MacKinnon p-value
of 0.0038. Turning our attention to the logarithm of
the volume of loans owed by the household sector to
commercial banks (LNLRBD), we observe a
pronounced stationarity at the stringent 5%
significance level with a test statistic of -3.937.
Lastly, the logarithm of the net lending/borrowing
ratio (LnLDR), while showcasing a weaker level of
stationarity compared to the others, still rejects the
null hypothesis of a unit root at the 10%
significance level with a test statistic of -2.445.
In light of these findings, all the key variables in the
study are deemed stationary, paving the way for the
application of the ARDL modelling approach. The
evidence of stationarity also provides initial
credence to our hypothesis that financial inclusion
metrics, as represented by bank deposits, loan
volumes, and lending ratios, have some form of
relationship with the broader economic growth in
Jordan, warranting a deeper investigation into their
long-term associations and potential causal
interactions.
Table 2 shows the ARDL model results, given
its ability to capture both short-term and long-term
dynamics, the study employed this model to
understand the relationship between the variables.
The results from the ARDL(3,3,3,3) regression are
as follows:
Table 2. ARDL Model
LNGDP
Coef.
Std.Er
r.
Interva
l]
LNGDP
L1.
-
.0988
0.503
-
0.387
L2.
-
.1050
0.239
0.745
L3.
-
.1030
0.255
-
0.290
LNDRBD
--.
0.682
0.309
0.180
L1.
.5970
0.712
6.264
L2.
0.432
0.638
4.162
L3.
0.424
0.500
0.466
LNLRBD
--.
1.385
0.274
0.513
L1.
0.652
0.229
1.379
L2.
0.511
0.273
1.381
L3.
0.344
0.210
1.014
LnLDR
--.
-
0.105
0.024
-
0.030
L1.
-
0.115
0.018
0.072
L2.
-
0.142
0.035
0.254
L3.
-
0.178
0.045
-
0.035
_cons
0.701
0.721
7.638
F( 15, 3) =
241.39
R-squared =
0.5998
Log likelihood =
69.727633
Prob > F =
0.0000
Root MSE =
0.0155
Root MSE =
0.0155
The study utilized an ARDL(3,3,3,3) model
specification to assess the dynamic relationship
Variable
Numb
er of
obs
Test
Statist
ic
(Z(t))
1%
Critic
al
Value
5%
Critic
al
Value
10%
Critic
al
Value
MacKinn
on p-
value
LNGDP
21
-3.865
-3.75
-3
-2.63
0.0311
LNDRB
D
21
-3.722
-3.75
-3
-2.63
0.0038
LNLRB
D
21
-3.937
-3.75
-3
-2.63
0.0004
LnLDR
21
-2.445
-3.75
-3
-2.63
0.0093
Augmented Dickey-Fuller (ADF) test
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between the logarithm of real GDP (LNGDP) and
the logarithm of household sector current deposits in
commercial banks (LNDRBD), the volume of loans
owed by the household sector to commercial banks
(LNLRBD), and the net lending/borrowing ratio
(LnLDR) over the period from 2003 to 2021.
The results indicate that the model accounts for
approximately 59.98% of the variation in LNGDP,
as evidenced by the R-squared value. This is
reaffirmed by the adjusted R-squared of 59.90%,
indicating a robust model fit. The overall
significance of the model is verified by the F-
statistic, which is highly significant at a p-value of
less than 0.01.
With regard to the lagged values of LNGDP, the
coefficients of the first and third lags are statistically
significant at the 5% level, indicating their relevance
in predicting future values of LNGDP.
For the variable LNDRBD, only the coefficients
of the first and second lags prove to be statistically
significant, particularly notable at the 5%
significance level, implying that past values of
deposits affect the current state of the real GDP.
Turning to LNLRBD, we notice that its
contemporaneous value and the coefficients of the
first and second lags are significant, suggesting that
both current and past lending dynamics play a role
in influencing LNGDP.
Lastly, LnLDR appears to have a pervasive
effect across all its lags, including its
contemporaneous value. All of its coefficients are
significant at the 5% level, emphasizing its crucial
role in the model.
The positive constant term of 0.701, significant
at the 1% level, may be interpreted as the inherent
growth in the LNGDP that is not explained by any
of the model variables.
In conclusion, the findings emphasize the
intricate lags and dynamic interrelationships
between financial inclusion indicators and economic
growth in Jordan. The ARDL model's nuanced
insights highlight the importance of considering
both short-term and long-term effects when
evaluating the impact of financial inclusion on
economic progression.
Table 3 shows the ARDL bounds test which is
employed to ascertain the presence of a long-term
relationship among the variables.
Given the F-statistic value of 8.741, it surpasses
the upper bound critical values for [I(1)] across all
significance levels, confirming the rejection of the
null hypothesis and pointing towards a long-run
relationship among the variables.
Table 3. ARDL Bounds Test Results [27]
Metric
Value
10%
(L_1)
5%
(L_05)
2.5%
(L_025)
1%
(L_01)
F-statistic
8.741
[2.720] /
[3.770]
[3.230] /
[4.350]
[3.690] /
[4.890]
[4.290] /
[5.610]
t-statistic
-5.823
[-2.570]
/ [-
3.460]
[-2.860] /
[-3.780]
[-3.130] /
[-4.050]
[-3.430] /
[-4.370]
Note: For each significance level, the values in square brackets represent the
[I(0)] / [I(1)] critical bounds.
Simultaneously, the t-statistic of -5.823 falls
below the lower bound critical values for [I(0)] for
all significance levels, further solidifying the
evidence for a long-run relationship.
This combined evidence from both the F and t
statistics indicates a cointegrated or levels
relationship among the series.
Upon examining the cointegration relationships
between the logarithms of real GDP (LNGDP),
household sector current deposits in commercial
banks (LNDRBD), the volume of loans owed by the
household sector to commercial banks (LNLRBD),
and the net lending/borrowing ratio (LnLDR), a
significant long-term relationship emerges from the
ARDL model.
The derived long-run coefficients are
normalized with respect to the first lag of LNGDP,
which stands at -0.0988. For LNDRBD, the
coefficients, when normalized, suggest that a 1%
increase in the household sector current deposits in
commercial banks leads to a decrease in the real
GDP by approximately 0.9818% to 1.3359% over
the long term, depending on the specific lag
structure.
Similarly, the long-run impact of the volume of
loans owed by the household sector to commercial
banks (LNLRBD) on LNGDP is even more
profound. Specifically, a 1% increase in LNLRBD
is associated with a decrease in the real GDP
ranging from 3.4820% to 6.6020%, contingent upon
the lag.
In contrast, the net lending/borrowing ratio
(LnLDR) demonstrates a positive long-run
relationship with LNGDP. A 1% surge in LnLDR
corresponds with an increase in real GDP between
1.1643% and 1.8006%, based on the respective lag.
These findings underscore the nuanced and
intricate interplay between financial inclusion, as
represented by bank deposits and loans, and
economic growth in the context of Jordan. As
policymakers and stakeholders seek to leverage
financial inclusion for economic prosperity, the
insights from this analysis provide a valuable
roadmap for informed decision-making.
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The first hypothesis posited that there might be
no enduring relationship between financial inclusion
and the rate of economic growth in Jordan
throughout the study's duration. However, insights
from the ARDL bounds test present a contrasting
picture, indicating a long-term or cointegrated
relationship among the variables under
consideration. Furthermore, the coefficients
extracted from the ARDL model, especially when
normalized concerning the lag of LNGDP, manifest
significant long-run dynamics. Given this evidence,
it becomes clear that the initial hypothesis can be set
aside. Instead, a substantial long-term relationship
appears to exist between financial inclusion metrics,
such as LNDRBD, LNLRBD, and LnLDR, and
Jordan's rate of economic growth, represented by
LNGDP.
The second hypothesis proposed that there
might not be a causal link between the financial
inclusion index and the rate of economic growth
throughout the study's timeframe. While insights
from the ARDL model shed light on the long-term
equilibrium relationships among the variables,
pinpointing causality demands a more rigorous
approach. Although the ARDL coefficients suggest
associations, they don't necessarily confirm
causality. Yet, the significance of lagged terms in
the model offers a hint toward potential causal
directions, implying that historical values of
financial inclusion metrics might influence the
present-day value of LNGDP. To solidify the
understanding of causality, the Granger causality
Wald test, which examines if past values of one
variable can forecast future values of another,
becomes pertinent, especially in light of the
cointegration evidence. By employing a VAR model
inclusive of the relevant variables and subsequently
conducting the Granger causality test, we aim to
delve deeper into this causal relationship. The
outcomes of this exploration are detailed in the
subsequent table.
The Granger Causality Test is conducted to
examine the directional influence between the series
of financial inclusion indicators and economic
growth in Jordan. Table 4 presents the results of this
test, which are pivotal for understanding the causal
relationships within the variables under study. The
chi-squared statistics and corresponding probability
values (Prob>Chi2) are crucial in determining the
presence of Granger causality.
For the model with LNGDP (logarithm of real
GDP) as the dependent variable, the causality test
results are indicative of financial inclusion metrics
(LNDRBD, LNLRBD, LnLDR) having a
statistically significant predictive power on
economic growth. The chi-squared values associated
with these indicators are 3.732, 6.907, and 11.147
respectively, with the probability values being well
below the conventional significance level of 0.05.
This statistical significance suggests that changes in
the financial inclusion indicators precede and thus
Granger-cause variations in economic growth,
affirming their predictive relevance.
Table 4. Granger Causality Test Results
Equation
Excluded
chi2
df
Prob>Ch
i2
LNGDP
LNDRBD
3.732
2
0.015
LNGDP
LNLRBD
6.907
2
0.032
LNGDP
LnLDR
11.147
2
0.004
LNGDP
ALL
50.376
6
0.000
LNDRBD
LNGDP
2.945
2
0.029
LNDRBD
LNLRBD
6.712
2
0.035
LNDRBD
LnLDR
12.870
2
0.002
LNDRBD
ALL
26.415
6
0.000
LNLRBD
LNGDP
18.775
2
0.000
LNLRBD
LNDRBD
19.342
2
0.000
LNLRBD
LnLDR
2.860
2
0.039
LNLRBD
ALL
56.815
6
0.000
LnLDR
LNGDP
2.572
2
0.027
LnLDR
LNDRBD
9.590
2
0.008
LnLDR
LNLRBD
0.968
2
0.016
LnLDR
ALL
14.842
6
0.022
Moreover, when the direction is reversed, with
the financial inclusion indicators as the dependent
variables, the test results suggest that economic
growth (LNGDP) also Granger-causes changes in
the financial inclusion metrics. This is evidenced by
the significant chi-squared values and low
probability values when LNGDP is excluded from
each equation, which implies a feedback effect.
The Granger Causality Test also considers the
combined influence of all included variables
(denoted as 'ALL'), showing that when all the
financial inclusion indicators are jointly considered,
the chi-squared statistics significantly increase, and
the probability values are virtually zero. This
provides strong evidence of a multivariate causal
relationship, wherein the group of financial
inclusion indicators and economic growth are
interconnected.
The bi-directionality of the causality is
particularly insightful, as it highlights a symbiotic
relationship between financial inclusion and
economic growth. It is not merely that financial
inclusion fosters economic growth, but also that as
the economy grows, it likely expands the
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.33
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opportunities for and effectiveness of financial
inclusion initiatives. This interplay is critical for
policymakers, suggesting that enhancing financial
inclusion can lead to economic growth and that
economic growth itself can further propagate
financial inclusion.
The evidence presented challenges the second
hypothesis, which postulated the absence of a causal
relationship between financial inclusion and
economic growth. Instead, the results reveal a
bidirectional causality, thereby negating the
hypothesis and underscoring the importance of
financial inclusion as both a precursor and a
consequence of economic growth.
Conversely, when using the financial inclusion
indicators as dependent variables, LNGDP Granger
causes them, as indicated by their respective
significant p-values. This suggests a bidirectional
causal relationship between Jordan's economic
growth and its financial inclusion metrics.
Based on the Granger causality test results,
there's evidence to challenge the second hypothesis
which posited that there's no causal relationship
between the financial inclusion index and the rate of
economic growth during the study period. The
results imply a bidirectional causality, meaning that
not only can financial inclusion predict future
economic growth, but past economic growth can
also predict the current level of financial inclusion.
This finding highlights the intertwined nature of
financial inclusion and economic prosperity in
Jordan.
5 Discussion
The intricate relationship between financial
inclusion and economic growth, particularly in
emerging economies such as Jordan, has been the
focal point of this study. Utilizing the ARDL model,
our analysis has unearthed a profound and enduring
relationship between financial inclusion metrics and
economic growth over the study period, a finding
that stands in contrast to the initial hypotheses.
Our results are in harmony with the broader
academic consensus that financial inclusion plays a
pivotal role in stimulating economic growth,
aligning with seminal works in the field, [8], [9]
[29]. This relationship is underscored by a
significant bidirectional causality, as evidenced by
the Granger causality test. Such a complex interplay
suggests that financial inclusion is not only a
catalyst for economic growth but also that economic
prosperity can enhance financial inclusion.
Comparing our findings with the broader
literature reveals intriguing parallels and contrasts.
For example, environmental considerations linked to
financial inclusion, as discussed in studies, [11],
[12], could represent a vital dimension of the impact
of financial inclusion not addressed in this study.
This aspect invites further exploration, particularly
within the context of Jordan's unique environmental
challenges.
The introduction of innovative metrics and
indices for measuring financial inclusion in recent
studies, [14], [28], also presents an opportunity to
deepen our understanding in future research
endeavors by applying these new tools to the
Jordanian context.
6 Conclusion and Future Research
In conclusion, this research contributes to the
empirical literature by affirming the symbiotic
relationship between financial inclusion and
economic growth within the context of Jordan. The
findings, demonstrating a bidirectional causal
relationship, resonate with the insights of seminal
authors such as, [8], [27], who underscore the
transformative role of financial inclusion in
economic development. Contrary to our initial
hypotheses, the evidence supports the
interconnectedness of financial inclusion and
economic growth, which aligns with the emerging
academic discourse, [9].
The insights garnered from this study are
particularly pertinent for Jordan’s policymakers,
who are faced with the challenge of charting paths
toward sustainable economic development. It is
suggested that future research could integrate the
innovative financial inclusion metrics which would
provide a more intricate analysis of Jordan's
financial landscape. This could yield a deeper
understanding of the specific facets of financial
inclusion that are most conducive to economic
vitality.
Furthermore, the environmental implications of
financial inclusion warrant further exploration.
Suggested future research could investigate the
potential environmental trade-offs of financial
inclusion strategies in Jordan, contributing to a more
comprehensive perspective on sustainable
development.
While the study offers in-depth insights into
Jordan, its focus limits the broader applicability of
the findings. A comparative analysis involving other
nations in the Middle East and North Africa could
offer a broader regional perspective and enrich the
understanding of the financial inclusion-economic
growth interplay.
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The causal mechanisms uncovered by this study
have not been qualitatively explored. Future
research, adopting a mixed-methods approach could
elucidate the qualitative dimensions and
mechanisms through which financial inclusion
impacts economic growth.
The field of digital financial services is rapidly
evolving and reshaping financial inclusion
paradigms. Future research should examine the
effects of digitalization on the financial inclusion-
economic growth nexus, an area that presents a
significant opportunity for scholarly exploration
given the global trend towards digital economies.
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
The authors equally contributed in the present
research, at all stages from the formulation of the
problem to the final findings and solution.
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
No funding was received for conducting this study.
Conflict of Interest
The authors declare no conflict of interest in relation
to the research, authorship, and/or publication of
this article.
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DOI: 10.37394/23207.2024.21.33
Shatha Yousef Abdel Khaleq,
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381
Volume 21, 2024