Impact of Good Governance on Financial Inclusion in India: Evidence from the ARDL Bounds Testing Approach

Abstract

Purpose: Financial inclusion plays a crucial role in a country’s economic development. In India, the Reserve Bank of India has actively promoted financial inclusion since 2005. This study examined the impact of good governance on financial inclusion in India by analyzing data from 1996 to 2021 using the Autoregressive Distributed Lag (ARDL) model. Methodology: The study considered the Financial Inclusion Index as the dependent variable, while good governance indicators: Control of Corruption, Government Effectiveness, Political Stability, Regulatory Quality, Rule of Law and Voice and Accountability, were taken as independent variables. Additionally, GDP per capita, Foreign Direct Investment (FDI) and inflation were incorporated as control variables to ensure robust results. The ARDL model, which accommodates variables integrated at different orders, was used to examine both long-run and short-run relationships between financial inclusion and other variables.