How does financial inclusion affect unemployment? : evidence from selected Upper Middle and Lower Middle-Income countries

The main objective of this study is to empirically examine the impact of financial inclusion on the rate of unemployment. To execute the research idea, the study has considered 31 countries (16 Upper-Middle Income and 15 Lower-Middle Income), over the period of 2004-2019. For the empirical analysis, the study has used Fixed Effect, Random Effect, Panel Corrected Standard Errors, Feasible General Least Square and System Dynamic Panel models. The empirical findings suggest that in the overall sample (that includes both UMI and LMI) and UMI countries, financial inclusion plays a significant role in reducing unemployment. The results from both the overall sample countries and UMI countries demonstrate that the basic level of financial inclusion has no impact on the rate of unemployment, whereas the more intense financial inclusion beyond the basic level helps to reduce the rate of unemployment. Similarly, the findings from LMI countries indicate that financial inclusion has no impact on unemployment, neither at the basic level nor at the advanced level. With context to financial inclusion and unemployment, this study is a first attempt to empirically examine the inter-relationship between financial inclusion and unemployment among the UMI and LMI countries.