Financial Inclusion Dynamics: A Cross-Country Examination of Bank Concentration and Policy Strategies

Abstract

Financial inclusion, ensuring access to affordable financial products and services, is vital for economic development and poverty reduction. This study investigates the relationship between bank concentration, policy mix, and financial inclusion dynamics in developed and developing nations across 2014, 2017, and 2021. Utilizing financial inclusion as the dependent variable, factors such as bank concentration, fiscal freedom, monetary freedom, globalization, education, and urbanization are examined as independent determinants. Separate analyses for each country group enable cross-country comparisons and policy insights. The findings reveal a consistent hindrance to financial inclusion due to high bank concentration across all years and in both developing and developed countries, highlighting the critical need to diversify financial institutions for enhanced access. The impact of fiscal freedom shows shaded patterns, with a modestly negative effect in 2017 for developing nations, underscoring the necessity for tailored fiscal policies to actively promote inclusion. Monetary freedom positively influences financial inclusion in 2014 and 2017, diminishing by 2021. Globalization consistently fosters financial inclusion, though its significance fades in developed countries in 2021. Education emerges as a key driver, displaying a robust positive relationship across all years and countries. Urbanization's impact varies, with significant positive effects in 2017 but diminishing significance by 2021. Policymakers are urged to diversify financial institutions, tailor fiscal policies, and ensure monetary stability. Fostering globalization and strategic investments in education are identified as effective strategies for enhancing financial inclusion, with a call for adaptable, context-specific approaches to ensure inclusive economic growth.