Financial Inclusion and Financial Stability in Selected MENA Countries: An Analysis of the Long-Run Relationship Using the Panel ARDL Approach
Keywords:
Financial inclusion, financial stability, MENA region, PMG-ARDL model, nonlinear relationship, panel analysis, financial developmentAbstract
This study was conducted with the aim of examining the effect of financial inclusion on financial stability in selected countries of the Middle East and North Africa (MENA) region during the period 2005–2024. For this purpose, panel data from 12 selected countries and the Pooled Mean Group (PMG) estimation method within the framework of the ARDL model were employed. The composite Financial Stability Index (FSI) was defined as the dependent variable, while the Financial Inclusion Index (FI) was considered the main explanatory variable of the study. In addition, the control variables included economic growth (GRO), population growth (POP), and financial development (FD). The results of the panel unit root tests indicated that all variables were stationary at the I(0) level. The Kao and Pedroni cointegration tests also confirmed the existence of a stable long-run equilibrium relationship among the variables. The estimation results of the baseline model revealed a positive and statistically significant effect of financial inclusion on financial stability (coefficient = 3.152, significant at the 1% level). The inclusion of the nonlinear term (FI²) demonstrated that there was no evidence of either an inverted U-shaped or a U-shaped relationship between financial inclusion and financial stability (FI² coefficient = 1.865, statistically insignificant). The error correction coefficient in both models was approximately -0.50 and significant at the 1% level, indicating a rapid adjustment speed toward long-run equilibrium (approximately 50% per year). Diagnostic tests, including normality, serial correlation, heteroskedasticity, and the Hausman test, all confirmed the validity and robustness of the estimated models. The findings suggest that policymakers in the MENA region can enhance financial sector stability by promoting financial inclusion, while the absence of a nonlinear relationship indicates the persistence of this positive effect across different levels of financial inclusion.
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Copyright (c) 2025 Haleemah Kadhim Khudhair Altameemi; Jafar Haghighat, Mohamad Reza Salmani Bishak (Author)
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