EXAMINING MICROFINANCE, FINANCIAL INCLUSION AND ECONOMIC WELFARE NEXUS: EXPERIENCE FROM PANEL DYNAMIC AND FULLY MODIFIED ORDINARY LEAST SQUARE TECHNIQUES

EXAMINING
MICROFINANCE, FINANCIAL
INCLUSION AND ECONOMIC
WELFARE NEXUS: EXPERIENCE
FROM PANEL DYNAMIC AND
FULLY MODIFIED ORDINARY
LEAST SQUARE TECHNIQUES
Charles O. Manasseh, Kenechukwu K. Ede,
Felicia C. Abada, Jonathan E.
Ogbuabor & 1Ifeoma C. Nwakoby
University of Nigeria Nsukka
Ifeoma.nwakoby@unn.edu.ng
ABSTRACT:
This study examined microfinance, financial
inclusion and economic welfare nexus in
sample of 23 selected African countries for
the period of 2004 to 2019 using annual time
series data. In addition, the study also
examined the causal link between
microfinance, financial inclusion and
economic welfare using Pairwise Granger
Causality and Toda –Yamamoto Causality
techniques. The study accounted for the
influence of institutional quality by
investigating the role of rule of law (ROL),
regulatory quality (REQ), and government
effectiveness (GEF) on economic welfare, as
well as its interactive effects. The influence of
other variables such as inflation rate, interest
rate and exchange rate were accounted for.
The nexus between microfinance, financial
inclusion and economic welfare were
estimated using Dynamic OLS (DOLS) and
Fully Modified OLS (FMOLS), while Panel
ARDL techniques was estimated to examine
the short-run dynamics. The Panel Least
Squares (PLS) technique was adopted to
investigate the effect of microfinance and
financial inclusion on economic welfare. The
estimated outcome of DOLS and FMOLS
revealed a significant long-run relationship
between microfinance, financial inclusion
and economic welfare, which was consistent
with the robustness check using panel ARDL
Accounting and Finance Research Association
and Least Square techniques. This finding
was also supported by the results of the
Pedroni and Kao Cointegration test. Thus, the
estimated panel least square indicated a
positive
and
significant
impact
of
microfinance and financial inclusion on
economic welfare. Further investigation
using of Pairwise Granger Causality test show
evidence of unidirectional causality running
from economic welfare to microfinance and
financial inclusion, while Toda -Yamamoto
Causality Tests revealed bidirectional
causality between microfinance, financial
inclusion and economic welfare. Hence, the
findings also show that quality institution
plays a significant role in promoting
microfinance and financial inclusion as well
as economic welfare. The coefficients ECT
show cointegration among the variables in
the panel. Therefore, deviations from the
long-run equilibrium are corrected at 68%
and 35% adjustment speed respectively.
Thus, there is the need for viable policies
initiation to promote microfinance and
financial inclusion in the selected countries.
In turn, this will exert positive influence on
economic welfare.
Keyword: Microfinance, Financial Inclusion,
and Economic Welfare.

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