Financial inclusion and human development in frontier countries

Abstract This study empirically investigates whether the level of human development drives greater financial inclusion, and vice versa in the contexts of frontier markets. The dynamic panel generalized methods of moments (System‐GMM) methodology is employed to analyze data spanning from 2005 to 2014 for twenty (20) frontier markets by Standard and Poor's Indices. The study finds that human development is a catalyst for financial inclusion scale‐up in the banking industry, which in turn, augments the development process. It establishes fresh evidence that income level, financial literacy, and healthy lives are the decisive factors for financial inclusion scale‐up in the banking industry. It finds new evidence that the underlying cause of low financial inclusion is low human development. The study concludes that low human development causes low financial inclusion. Also, promoting financial inclusion through the banking sector is very instrumental to stimulating human development, thus the reverse applies in frontier markets. The study implies that low living standards, poor health, high illiteracy, and deprived well‐being and freedom largely account for low financial inclusion hence its spillover effect of having low human development in frontier market countries.

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