Digital Financial Inclusion and Human Development: Cross-Country Evidence from Developing Economies
DOI:
https://doi.org/10.54878/yex2px39Keywords:
digital financial inclusion, human development index, governance, panel data, developing economiesAbstract
This paper examines whether digital financial inclusion (DFI) is positively associated with the Human Development Index (HDI) across developing economies and whether governance quality moderates that relationship. The current research uses a five-wave panel of 108 developing countries for 2011 to 2024, anchored on the World Bank Global Findex 2025, and estimates country and year fixed-effects regressions alongside a within-demeaned dynamic panel model that conditions on lagged HDI. The study reports associations, not causal effects. Three findings emerge. First, DFI is positively and significantly associated with HDI across all specifications, with the association persisting in the dynamic model (coefficient = 0.155, p < 0.001). A one-standard-deviation DFI increase co-varies with roughly 13 per cent of the average HDI change observed over the study period. Second, the DFI–governance interaction is statistically indistinguishable from zero across all six individual governance dimensions: H2 is not supported. Third, a leads specification shows no significant association between future DFI and current HDI (p = 0.319), providing limited evidence against strong reverse causality. The study explicitly notes limitations: the absence of an instrumental variable strategy precludes causal identification; country-specific time trends cannot be entirely excluded; and the five-wave structure of the Global Findex imposes a coarse temporal grid. These findings are offered as exploratory associations suitable for replication with sub-national panel data and quasi-experimental designs.
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Table A1. DFI–HDI association using individual WGI governance dimensions
Notes: Each row is a separate country and year fixedeffects regression with the stated WGI dimension replacing the composite governance index, with the full control set and mean-centred DFI and governance before interaction. HC3 robust standard errors. N = 540. The DFI coefficient is positive and significant in all six specifications. The DFI × Governance interaction is not significant for any dimension. *** p < 0.01.
Table A2. AR(1) lag coefficient comparison: mechanical bias diagnosis
Notes: All models include a lagged HDI term and the full control set. Pooled OLS includes year fixed effects but no country fixed effects. Standard FE-OLS includes country and year fixed effects. With indemeaned dynamic is the Model (4) specification from Table 3. The monotone decline from 0.906 to −0.224 as within-transformation severity increases is the canonical Nickell (1981) bias signature, confirming the negative lag in Model (4) is mechanical. HC3 robust
