A multivariate time series analysis using vector error correction models in explaining the relationship of financial inclusion and economic growth in the Philippines

• Main Authors: Capili, Regine Alyana G., Mendoza, Claribel Jane
• Format: text
• Language: English
• Published: Animo Repository 2022
• Subjects: Economic development > Philippines; Financial services industry > Philippines; Multivariate analysis; Mathematics
• Online Access: https://animorepository.dlsu.edu.ph/etdb_math/10; https://animorepository.dlsu.edu.ph/cgi/viewcontent.cgi?article=1010&context=etdb_math
• Institution: De La Salle University

For years, many have been interested to know about the relationship of financial inclusion and economic growth. Since FI is recognized as a multidimensional concept, this study found it necessary to apply strategies to have a comprehensive measure of FI for its different dimensions and use these to examine its relationship with economic growth, specifically with GDP growth rate. The Euclidean distance method proposed by earlier researchers was used to estimate the index for the usage and access dimensions of FI which were used to investigate the relationship of FI and GDP growth rate. This study identified the long-run and short-run relationship between the dimensions of FI and GDP growth rate in the Philippines from 2010-2017. According to the results of the Johansen’s Cointegration test, a cointegrating relationship was found to exist in the dimensions of FI and GDP growth rate. Since this was found to exist, the vector error correction model was used to model the variables and the said relationship wherein a significant long-run relationship was found when GDP growth rate and usage dimension were the target variables. These findings suggest that financial inclusion dimensions affect economic growth in the long-run. Furthermore, the constructed models of the relationship were also considered to have accurate forecasting capability for GDP growth rate and the dimensions of FI.