ABSTRACT
In this chapter, we empirically investigate if, in what direction and under what circumstances financial inclusion amplifies or moderates macroeconomic volatility. While expanding financial services provision has the potential to promote equitable economic growth, the related literature has not paid much attention to the nexus between financial inclusion and output volatility, which is a central concern for policymakers in emerging market and developing economies (EMDEs). Exploiting a large panel of 103 EMDEs spanning the period 1995 to 2013, we empirically probe the relationship between financial inclusion and output volatility and find a strong and persistent trade-off between higher financial inclusion and output stability. We also find that when greater financial inclusion coincides with excessive credit growth it tends to worsen output volatility.
