Nexus between Financial Inclusion and Human Development: Evidence from an Emerging Economy

 Author (s)

Md. Main Uddin Ahammed

Abstract

Financial inclusion has been more closely looked at as an instrument to advance human development, especially in emerging economies like Bangladesh. The developmental impacts of financial inclusion can be different, however, between those who have access to financial services and those who do not, as well as between those who use financial services and those who don’t use them. This study aims at exploring the relationship between financial inclusion and human development based on annual time-series data spanning 2004-2023. In the conceptual framework based on the Capability Approach Theory and Human Capital Theory, financial inclusion is discussed under three headings – access (ACC), usage (USA) and the composite Financial Inclusion Index (FII) based on Sarma’s methodology. The methodology of the study uses Autoregressive Distributed Lag (ARDL) approach, bounds and error correction modeling for both short run dynamics and long run relationship between financial inclusion and Human Development Index (HDI) with diagnostic and stability tests to test the robustness of estimated model. The results indicate that there is a strong long-run association between the variables. The FII has a positive and significant impact on HDI, and the access dimension (ACC) contributes positively to human development, by broadening opportunities and capabilities. The usage dimension (USA), by contrast, has a substantial negative impact, indicating that greater credit usage, if not combined with proper allocation, financial knowledge and responsible credit behaviors with it, may not bring developmental benefits. The policy implications underscores the need to not only make financial products accessible, but also use them in a productive and sustainable way to improve human development outcomes.

Keywords: Access, Usage, ARDL, Financial inclusion, HDI, Time series, Emerging economy.

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Cite This Article:

Ahammed, M. M. U. (2026). Nexus between Financial Inclusion and Human Development: Evidence from an Emerging Economy, International Journal of Science and Business, 54(1), 16-33.  https://doi.org/10.58970/IJSB.2716

About Author (s)

Md. Main Uddin Ahammed, Associate Professor, Department of Finance and Banking, Hajee Mohammad Danesh Science and Technology University, Dinajpur, Bangladesh. ORCID: https://orcid.org/0009-0006-2136-3013

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DOI: https://doi.org/10.58970/IJSB.2716

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