The associations between financial inclusion and socio-economic development in transition economies

Research has shown that financial inclusion is positively linked to economic growth and poverty reduction. However, little has been said about its influence on social indicators of development. Moreover, the age of digitalization, coupled with the impact of the COVID-19 pandemic, has opened new frontiers for increased financial inclusion. This study aims to explore the connection between financial inclusion and social progress by introducing a novel composite index that reflects the evolving landscape of finance. This comprehensive index incorporates both demand and supply-side data to capture the multidimensional nature of financial inclusion. The association between the two concepts is investigated using bivariate correlation analysis. The link is also examined in regard to the distinct institutional and economic contexts of transition economies. The study's findings reveal a substantial global increase in financial inclusion, particularly in developing countries. A few of the transition economies have shown notable improvements as well. Moreover, the analysis demonstrates a significant correlation between financial inclusion and social progress. However, the strength of this relationship is slightly weaker for transition economies. These findings carry significant implications. Firstly, they call for a reevaluation of the conventional measures of financial inclusion prevalent in the literature. Secondly, the study highlights the transformative potential of financial inclusion in empowering marginalized populations and facilitating positive social outcomes.