Empirical research on the relationship between financial inclusion and economic growth has neglected the influence of religion or secularism. This study aims to investigate the effect of financial inclusion on economic growth in religious and secular countries.
The financial inclusion indicators are the number of automated teller machines (ATMs)per 100,000 adults and the number of bank branches per 100,000 adults. These two indicators are the accessibility dimension of financial inclusion based on physical points of service. The two-stage least square (2SLS) regression method was used to analyze the effect of financial inclusion on real gross domestic product (GDP) per capita growth and real GDP growth in religious and secular countries.
Bank branch contraction significantly increases economic growth in secular countries. Bank branch expansion combined with greater internet usage increases economic growth in secular countries while high ATM supply combined with greater internet usage decreases economic growth in secular countries. This study also finds that bank branch expansion, in the midst of a widening poverty gap, significantly increases economic growth in religious countries, implying that financial inclusion through bank branch expansion is effective in promoting economic growth in poor religious countries. It was also found that internet usage is a strong determinant of economic growth in secular countries.
Few studies in the literature examined the effect of financial inclusion on economic growth. But the literature has not examined how financial inclusion affects economic growth in religious and secular countries.
