INSTITUTIONAL DRIVERS OF FINANCIAL INCLUSION: A 75-COUNTRY EXAMINATION USING DIFFERENCED-GMM TECHNIQUE

Abstract

The study investigates the role of institutional quality in promoting financial inclusion, a critical driver of sustainable economic development and societal transformation. By focusing on its links to seven of the 17 Sustainable Development Goals (SDGs), the research highlights the importance of robust institutions in enhancing inclusive financial systems. The study adopts a panel data approach using secondary data from the World Development Indicators covering 75 countries between 2006 and 2021. To ensure robust analysis, the Differenced-Generalized Method of Moments (D-GMM) model is employed, enabling a comprehensive evaluation of the institutional determinants of financial inclusion. The results show that regulatory quality and political stability positively influence financial inclusion by creating supportive environments for financial access. In contrast, corruption and weak governance exert negative effects, undermining trust and constraining service accessibility. These findings highlight the central role of institutional frameworks in shaping inclusive financial ecosystems. This study advances the literature by introducing a novel financial inclusion index that consolidates essential dimensions into a standardized and comprehensive measure, minimizing overlaps among components. It further integrates institutional quality into financial inclusion research through the use of D-GMM. Distinguishing itself from earlier studies, it provides robust empirical evidence across diverse national contexts. Policymakers are encouraged to strengthen regulatory frameworks, enhance political stability, and implement anti-corruption measures to foster inclusive financial systems. Such initiatives will not only improve access to financial services but also contribute to achieving broader socio-economic development and SDGs.