Financial inclusion, being considered as a key enabler to reducing poverty and boosting prosperity in emerging and frontier markets such as Vietnam, is the process in which individuals and small businesses are provided with an access to useful and affordable financial products and services. The extant literature on the empirical evidence regarding the contribution of financial inclusion to macroeconomic stability is mixed. This paper investigates the linkages between financial inclusion and macroeconomic stability, which has not yet been thoroughly examined in the literature, for 22 emerging and frontier economies from 2008 to 2015, with particular focus on a potential optimal level. Using the panel threshold estimation technique, the empirical findings show that financial inclusion, as approximated by the growth rate in the number of bank branches over 100,000 account holders, is found to enhance financial stability under a certain threshold. Financial inclusion is also found to be of benefit to maintaining stable inflation and output growth. Policy implications are also discussed on the basis of the important empirical findings.

Additional Metadata
Keywords Financial inclusion, Macroeconomic stability, Panel threshold, Emerging and frontier markets
JEL Existence and Stability Conditions of Equilibrium (jel C62), Finance (jel F65), Financial Markets; Saving and Capital Investment (jel O16), International Trade, Finance, Investment, and Aid (jel P45)
Persistent URL hdl.handle.net/1765/113132
Series Econometric Institute Research Papers
Citation
Vo, A.T, Van, L. T.-H, Vo, D.H, & McAleer, M.J. (2018). Financial Inclusion and Macroeconomic Stability in Emerging and Frontier Markets (No. EI-2018-46). Econometric Institute Research Papers. Retrieved from http://hdl.handle.net/1765/113132