The Relationship between Financial Inclusion and Economic Growth: Evidence from ARDL Modeling

Abstract

ABSTRACT

This study examines the impact of financial inclusion on economic growth in Nigeria from 1986 to 2020. The statistical properties of data were tested using Zivot-Andrew unit root test. The Zivot Andrew unit root test indicates that gross domestic product, commercial bank branches and mobile phone-based transactions are stationary at first difference while Automated Teller Machines and foreign direct investment are stationary at level. Bound test for long run shows that there is a long run relationship among the variables of interest.  The Auto regressive Distributive Lag (ARDL) result indicates that in the short run, commercial bank branches have positive and statistically significant impact on gross domestic product in Nigeria. Automated Teller Machine has negative but statistically insignificant impact on gross domestic product in Nigeria.  The  long  run  coefficient  shows  that  commercial  bank  branch  has  positive  and statistically significant impact on gross domestic product in Nigeria. Automated Teller Machine has positive and statistically significant impact on gross domestic product in Nigeria. Mobile phone-based  transaction  has  positive and  statistically  significant impact  on  gross domestic product in Nigeria. Foreign direct investment has positive and statistically significant impact on gross domestic product in Nigeria. The error correction term (ECT) meets all the theoretical and statistical  requirements  both  in  the  sign  and  size.  The  ECT  coefficient  is  -0.522626and significance at 5%. This indicates that at 52.26% of the disequilibrium due to the shock in the previous years is adjusted back to the long run equilibrium in the current year. The Granger causality  test  shows  that  commercial  bank  branches,  automated  teller  machine  domestic depositors’ money in banks and foreign direct investment granger causes gross domestic product while mobile phone-based transactions do not granger cause gross domestic product. The study recommend that Central Bank of Nigeria should compel commercial banks to add the number of Automated Teller Machine in each branch and ensure constant service delivery service of the machines for customer to have access to their funds.