Financial inclusion for selected OECD countries

Purpose- Financial inclusion is defined as a process that ensures the ease of access, availability, and usage of the formal financial system for all members of an economy by emphasizing the use of accessibility and availability of financial services. A financial sector is measured and compared on four main features; debt is the size of financial institutions, access is the access and use of financial services by the users, efficiency is the efficiency in the provision of financial services, and stability is the stability in the provision of financial services. Financial inclusion, in short, is adults' access to and use of financial services. This study aims to measure the financial inclusion level for selected OECD countries from 2010-2021. Also, this study aims to estimate the effect of financial inclusion on economic growth and income inequality for selected countries. Methodology- The data used in this study cover a range of variables related to financial inclusion from various institutions, including the IMF-Financial Access Survey (IMF-FAS), the World Bank - World Development Indicators (WB-WDI), the World Bank - Global Financial Development Database (WB-GFDD) and the Standardized World Income Inequality Database (SWIID). These variables provide insights into the dimensions and determinants of financial inclusion and their impact on economic and social outcomes for selected OECD countries. In the study, we run panel data regressions for each group separately, using GDP per capita as the dependent variable to determine the impact of the Financial Inclusion Index on economic growth. We also construct two different models for each group of countries with and without the added control variables into the models. Findings- The analysis reveals that the effect of financial inclusion on economic growth is negative for all groups of countries. The impact is significant for Group 1 and Group 2. The magnitude of coefficients changes when we add control variables to the model. However, it does not change the significance level of the coefficients. The magnitude of the coefficients increases as countries’ per capita income increases. At the same time, the effect of financial inclusion on the GINI index is significant only in the model for Group 3 with control variables. The sign of the impact is negative. It implies that the GINI index decreases as the financial inclusion index increases. So, the effect of financial inclusion on income inequality is positive for countries in Group 3. Conclusion- The empirical results did not support the relationship between financial inclusion and economic growth (GDP per capita). These results may be explained by advocating the financial sector's quick and fundamental digital transformation. Hence, the rules for availability, accessibility, and usage of financial products and system are completely changed in the past ten years. On the other hand, the relationship between financial inclusion and income inequality, measured by GINI Index, is consistent with the literature only for Group 3 countries (developing countries). The increase in the gap between rich-developed and developing countries may explain these results. An increase in financial inclusion still supports adjustments in income inequality in developing countries, but its effect is disappeared in developed countries in the last 12 years.Publisher's Versio

Financial inclusion and economic development: Turkey and Greece

Purpose- Financial inclusion means individuals and businesses have access to useful and affordable financial products and services to deliver their needs in a responsible and sustainable way. A financial sector is measured and compared on four main features; debt is the size of financial institutions, access is the access and use of financial services by the users, efficiency is the efficiency in the provision of financial services, and stability is the stability in the provision of financial services. The purpose of this paper is to measure the level of financial inclusion of Turkey and Greece from 2000 to 2020 and compare its relationship with the economic growth and income inequality of both countries. Methodology- The World Bank data covering the 2000-2020 period is extracted from Turkey and Greece from the world bank report. The whole financial system for both countries is defined as a combination of banks, nonbanks financial institutions, and stock exchange markets. The related indicators for each of the subsectors of the financial system are determined for banks, nonbanks financial institutions, and stock exchange markets. Thus, 32 indicators for banks, 6 indicators for nonbanks, and 16 indicators for stock exchange markets are determined for the financial inclusion index. All indicators are in percentages. All individual indicators are summed for the computation of subsectoral indexes and then the growth rate in each subsectoral indexes are computed. The growth rates of each subsectoral index are summed and weighted by the subsectoral asset sizes or trading volüme. Finally, the causal relationship between the financial inclusion index, Gini coefficient, Poverty Headcount ratio, and GDP per capita was examined. Findings- The average growth rate for the financial inclusion index for the 21 years is 2,83% for Turkey and 0,97% for Greece. According to the analysis, we found that the financial inclusion index Granger-cause GDP per capita, Gini index Granger-cause financial inclusion index and there is a bidirectional relationship between the financial inclusion index and Poverty Headcount ratio for Turkey. On the other hand, there is a bidirectional relationship between GDP per capita and the financial inclusion index and a bidirectional relationship between the financial inclusion index and the Poverty Headcount ratio for Greece. Conclusion- Financial inclusion simply means a larger size of financial institutions and a variety of financial products and services available for the use of adult individuals, businesses, and governmental agencies. Economic growth is supported and accelerated by an increase in financial inclusion. The empirical analysis supports the literature that the growth in the financial inclusion index enhances a higher growth in GDP and a much higher growth in GDP per capita for both Turkey and Greece. The project titled “Istanbul as an International Financial Center” may easily improve the level of financial inclusion in Turkey.Publisher's Versio

Financial inclusion: the case of Turkey

Purpose- Financial inclusion is defined as a process that ensures the ease of access, availability and usage of the formal financial system for all members of an economy by emphasizing the use of accessibility, availability of financial services. A financial sector is measured and compared on four main features; debt is the size of financial institutions, access is the access and use of financial services by the users, efficiency is the efficiency in the provision of financial services, stability is the stability in the provision of financial services. Financial inclusion, in short, is adults' access and use of financial services. The purpose of this paper is to measure the level of financial inclusion of Turkey for the period of 2000-2017. Methodology- The World Bank data covering 2000-2017 period is extracted for Turkey. The whole financial system of Turkey is defined to be a combination of banks, nonbanks financial institutions and exchange markets. The related indicators for each of the subsections of the Turkish financial system are determined for banks, nonbanks and exchange markets providing a continued data stream. Thus, 32 indicators for banks, 6 indicators for nonbanks and 16 indicators for exchange markets are determined for the financial inclusion index for Turkey. All indicators are in percentages. All individual indicators are summed for the computation of subsectional index and then the growth rate in each subsectional index is computed. Finally, the growth rates of each subsectional index are summed and weighted considering the subsectional asset sizes or trading volume. Findings- The highest growth years in financial inclusion of banks; 15.26% in 2002, 8.05% in 2009, and 4.42% in 2014. The lowest growth years in financial inclusion of banks; -10.36% in 2001 and -2.00% in 2008. The average growth rate for banks for the 17 year period is 2.14%. The highest growth years in financial inclusion of nonbanks; 24.47% in 2004, 28.37% in 2006, 26.34% in 2009, 53.07% in 2010, and 30.86% in 2014. The lowest growth years in financial inclusion of nonbanks; -18.74% in 2001, -22.95% in 2011 and -11.39% in 2016. The average growth rate for nonbanks for the 17 year period is 6.19%. Conclusion- Financial inclusion simply means a larger size of financial institutions and a variety of financial products and services available for the use of adult individuals, businesses and governmental agencies. The existing literature advocate that the economic growth can be accelerated by an increase in financial inclusion. The empirical analysis for Turkey supports the literature where the growth in financial inclusion index enhances a higher growth in GDP and a much higher growth in GDP per capita. The project titled “Istanbul as an International Financial Center” may easily improve the level of financial inclusion in Turkey. For a sustainable economic growth and a fair income distribution in Turkey, the policy makers and administrators should set the rules and regulations to improve the financial inclusion.Publisher's Versio

A measurement of dollarization

Purpose- Dollarization refers to the use of foreign currency instead of domestic currency by citizens as a result of macroeconomic instabilities. Generally, due to the instability caused by inflation, the local currency loses its functions as a unit of account, a store of value, and in the last stage, a medium of exchange. Partial dollarization is the fulfillment of any of the three functions of money by a foreign currency. The purpose of this study is to measure the dollarization level of the Turkish economy between 2000 and 2022 (a 23-year period). This study employs the most comprehensive definition of portfolios of Turkish Lira and foreign currency to measure the degree of asset and liability dollarization. This study measures the dollarization degree of the Turkish economy by using the composite dollarization index developed by Reinhart et al., (2003). Methodology- The composite dollarization index based on the definition by Reinhart et al., 2003, has two components; asset dollarization and liability dollarization. This study measures the level of dollarization by using Reinhart's definition of the Turkish economy between 2000 and 2022. We construct the asset dollarization as a ratio of the foreign currency portfolio to the total portfolio. Liability dollarization is defined as the sum of the ratio of foreign currency credit to the total credit, the ratio of the domestic debt in foreign currency to the total domestic debt, and the ratio of total external debt to the GDP. The composite dollarization index is the sum of asset dollarization and liability dollarization. Findings- The dollarization in bank deposits rose to 57%in 2001 and then dropped to 27% in 2010. The dollarization in bank deposits has started to rise again since 2013. The increase in dollarization in bank deposits has accelerated since 2021. It reached 70% by the middle of 2022. Asset dollarization has a similar path to the dollarization in bank deposits. The level of the asset dollarization is generally lower than the level of the deposit dollarization for all years examined. The liability dollarization also follows a similar path. As the degree of asset dollarization increases, the degree of liability dollarization also increases. Finally, the composite dollarization index has been rapidly increasing since 2010. Conclusion- As discussed extensively in the literature, the degree of dollarization is an important indicator of a healthy economy. The literature supports that there is a strong link between the degree of dollarization and macroeconomic indicators. When economic instabilities are on the screen, the use of a stable foreign currency instead of domestic currency increases. Some previous studies measured the dollarization by considering only asset dollarization or only liability dollarization may have deficiencies in the comprehensive definition of dollarization. Therefore, a comprehensive measurement of dollarization should better consider both the assets and liabilities of the balance sheets. The empirical findings of this study indicate that the degree of dollarization has been increasing since 2013 and the rate of increase accelerated especially after 2021 based on the comprehensive dollarization index constructed.Publisher's Versio