Financial Inclusion, Globalization and Structural Transformation in Developing Countries: A Finite Mixture-of-Regressions Approach

Sawadogo, Relwendé; Sawadogo, Pegdéwendé Nestor; Kinda, Romuald Somlanaré

doi:2024.39.2.420

The Journal of Economic Integration 2024 June;39(2) :420-453.
DOI: https://doi.org/10.11130/jei.2024013

Financial Inclusion, Globalization and Structural Transformation in Developing Countries: A Finite Mixture-of-Regressions Approach

Relwendé Sawadogo, ¹ Pegdéwendé Nestor Sawadogo, ² Romuald Somlanaré Kinda, ³

¹University of Joseph Ki-Zerbo, Ouagadougou, Burkina Faso
²International Monetary Fund (IMF), Washington, D.C., USA
³University of Thomas Sankara, Saaba, Burkina Faso

Corresponding Author: Relwendé Sawadogo ,Email: relwende.sawadogo@ujkz.bf

ABSTRACT

Industrialization plays a key role in job creation and economic development. We extend the abundant literature on the determinants of industrialization by exploring the potential effects of financial inclusion in 64 developing countries over the period 2000-2020. Using a finite mixture regression model, we find that our sample is best described by a model with three classes of countries. We then incorporate the potential presence of hidden heterogeneity and, we explain the class membership of countries based on globalization. We find that the impact of financial inclusion on industrialization differs across these three classes of countries. Specifically, financial inclusion is negatively associated with industrialization in the first class of countries where the level of industrialization is low, while it positively affects industrialization in relatively more industrialized countries (class 2 and class 3). We also show that better-integrated countries into the global economy are more likely to be in the class where financial inclusion promotes industrialization. Our results are robust to several robustness checks. Our findings suggest that developing countries could reap more benefits from financial inclusion by strengthening their integration into the global economy.

JEL Classification

G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages
F63: Economic Development
O14: Industrialization; Manufacturing and Service Industries; Choice of Technology
C13: Estimation: General

Keywords: financial inclusion | globalization | industrialization | finite mixture regression | developing countries