Economic Uncertainty in Developing Countries: Does Financial Inclusion Matter?

The global expansion of financial inclusion is a critical issue for policymakers around the world. However, its impact on economic uncertainty remains poorly understood. This paper addresses this gap by carefully considering self-selection bias and endogeneity in the relationship between financial inclusion and economic uncertainty. Using matching techniques, we examine whether the level of financial inclusion (i.e., the treatment) has a significant impact on economic uncertainty (i.e., the outcome). Analyzing a sample of 99 developing countries over the period 2004-2018 and employing two matching techniques, we find that the average treatment effect of financial inclusion on economic uncertainty is negative and statistically significant, suggesting that countries with higher financial inclusion experience lower economic uncertainty. These robust results, across various empirical specifications, highlight the important role of inclusive financial systems in mitigating economic uncertainty in developing countries.