THE NEXUS BETWEEN FINANCIAL INCLUSION, FINANCIAL STABILITY AND ECONOMIC GROWTH IN THE COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA REGION: A CS-ARDL APPROACH

Elhame Derese ADEME; Patricia L. MAKONI

doi:10.65672/fs.2026.3.1

THE NEXUS BETWEEN FINANCIAL INCLUSION, FINANCIAL STABILITY AND ECONOMIC GROWTH IN THE COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA REGION: A CS-ARDL APPROACH

Authors

Elhame Derese ADEME - Department of Finance, Risk Management and Banking, University of South Africa, South Africa.
Patricia L. MAKONI - Department of Finance, Risk Management and Banking, University of South Africa, South Africa.

Landing page: https://www.icfm.ro/fs.icfm.ro/articles/vol30i3p6-36.html

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DOI: 10.65672/fs.2026.3.1

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Abstract

This study examines the long-run relationship among financial inclusion, financial stability and economic growth in the Common Market for Eastern and Southern Africa (COMESA) region, utilising panel data from 2007 to 2022. To account for the multidimensional nature of financial inclusion and financial stability, we constructed composite indices for each variable using Principal Component Analysis (PCA). We employed second-generation unit root tests to determine the order of integration of the variables and the Cross-Sectional Augmented Autoregressive Distributed Lag (CS-ARDL) model, which accounts for cross-sectional dependence and mixed levels of integration. The test results indicate the presence of slope heterogeneity and cross-sectional dependence in the panel dataset. The error-correction model confirms strong long-run cointegration among financial inclusion, financial stability, and economic growth in the COMESA region. The results indicate that financial stability and economic growth enhance financial inclusion in the long run. Specifically, we state that the COMESA region’s economic growth increased by 1.7% for every 1% increase in financial inclusion. Overall, the findings confirm that enhancing financial inclusion improves financial sector stability and that a stable financial system increases economic growth. Therefore, since both are necessary to improve financial inclusion in COMESA, we advise policymakers to focus on policies and strategies that strengthen the financial system and enhance economic growth in the region.

JEL Classification

C33, C38, E02, E44, O16

Keywords

inclusive finance, banking stability, panel cointegration, cross-sectional dependence, composite index

How to cite

Elhame Derese ADEME, Patricia L. MAKONI (2026). THE NEXUS BETWEEN FINANCIAL INCLUSION, FINANCIAL STABILITY AND ECONOMIC GROWTH IN THE COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA REGION: A CS-ARDL APPROACH. Financial Studies, 30(3), 6-36. DOI: 10.65672/fs.2026.3.1.

RePEc record

Handle: RePEc:vls:finstu:v:30:y:2026:i:3:p:6-36