Effect of financial inclusion on economic growth in East African countries

Abstract

This study examines the relationship between financial inclusion and economic growth in East African countries, Burundi, Ethiopia, Kenya, Sudan, Tanzania, Uganda, and Rwanda, over 2004–2021. Using ARDL regression analysis, it investigates the effects of the Financial Inclusion Index (FII), institutional quality (IQI), ICT index (ICTI), and Gross Savings (LogGS) on GDP per capita (logGDPPC). Results reveal notable differences across countries: Kenya, Tanzania, and Rwanda show strong positive links between financial inclusion and growth, driven by mobile banking innovations and supportive institutions. In contrast, Burundi and Sudan display weak or negative associations, reflecting instability and underdeveloped systems. Ethiopia and Uganda exhibit positive but modest outcomes, highlighting the need for more efficient financial markets and better savings allocation. Overall, findings suggest that financial inclusion alone is insufficient; institutional reforms, stronger governance, and improved credit access are essential to maximize growth benefits. Policy recommendations emphasize strengthening financial infrastructure, promoting financial literacy, and enhancing regulatory frameworks to foster inclusive development. These measures align with SDG 8 (Decent Work and Economic Growth), SDG 10 (Reduced Inequalities), and the African Union's Agenda 2063.