The Relationship between Governance Quality and Financial Stability with Mediator Role of Financial Inclusion

Document Type : Research Paper


1 Assistant Professor, Department of Economics, Economic Affairs Research Institute, Tehran, Iran

2 Assistant Professor, Department of Economics, Payame Noor University, Tehran, Iran


In the present study, the relationship between financial stability, quality of governance and financial inclusion has been investigated in developing countries with upper middle income in the period from 2004 to 2020. The multidimensional indexing method and two-stage GMM have been utilized to achieve this goal. Also, the mediating role of the financial inclusion in the relationship between the governance quality and financial stability has been examined by two methods of estimation and Sobel statistics. The results showed that the financial inclusion and governance quality had a positive and significant effect on the financial stability. The mediating role of the financial inclusion in the relationship between the governance quality and financial stability has been confirmed by Sobel test statistics. Based on these results, it is suggested that the rules and regulations should be reviewed by regulatory institutions in order to increase the financial activities which improve the financial inclusion and maintain the improved financial stability in the long run to reduce the negative effects of multiple regulations on financial inclusion..
JEL Classification: C38, O16, O57


  1. آقایی، مجید، کوهبر، محمد امین و احمدی‌نژاد، حسین (1397). ثبات مالی و عملکرد اقتصادی: مطالعه موردی کشورهای عضو اوپک،اقتصاد و الگوسازی، 9(2): 65-29.
  2. شاه‌آبادی، ابوالفضل و مرادی علی، مومیوند قاسم (1400). اثر متقاطع توسعه مالی و حکمرانی خوب بر نوآوری در کشورهای منتخب کارایی محور،مجله مدیریت نوآوری، 9(4): ۸۸-67.
  3. فاضلی، محمد و جلیلی‌کناری، ‌محدثه (2012). تبیین سطح فساد: بررسی تطبیقی اثر کیفیت حاکمیت و حکمرانی خوب.راهبرد اجتماعی فرهنگی، 5(2): 40-7.‎
  4. میرباقری هیر میرناصر، ناهیدی امیرخیز محمدرضا، شکوهی فرد سیامک (1395). ارزیابی ثبات مالی و تبیین عوامل مؤثر بر ثبات مالی بانک‌های کشور. فصلنامه سیاست‌های مالی و اقتصادی. ۴ (۱۵): ۴۲-23.
  5. نجفی سید محمد باقر، فتح­الهی جمال و محمدپور فرحناز (1398). نقش حکمرانی خوب در تحقق اقتصاد دانش­بنیان در ایران (در قالب مدل مارپیچ چهارگانه). فصلنامه پژوهش‌های اقتصادی (رشد و توسعه پایدار)، 19 (1): 158-129.
  6. Aaberge, R., Liu, K., & Zhu, Y. (2017). Political uncertainty and household savings. Journal of Comparative Economics, 45(1), 154-
  7. Aburime, T. U. (2009). Impact of corruption on bank profitability in Nigeria. EuroEconomica, 20(2), 50-
  8. Ahmad, D. (2018). Financial inclusion and financial stability: Survey of the Nigeria’s financial system. International Journal of Research in Finance and Management, 1(2), 47-54.
  9. Ajide, K. B. (2017). Determinants of financial inclusion in Sub-Saharan Africa countries: Does institutional infrastructure matter? CBN Journal of Applied Statistics, 8(2), 69-89.
  10. Alhassan, A. Li, L., Reddy, K., & Duppati, G. (2021). The relationship between political instability and financial inclusion: Evidence from Middle East and North Africa. International Journal of Finance & Economics, 26(1), 353-
  11. Anarfo, E. B., & Abor, J. Y. (2020). Financial regulation and financial inclusion in Sub-Saharan Africa: Does financial stability play a moderating role? Research in International Business and Finance, 51, 101-122.
  12. Anthony-Orji, O.I. Orji, A. Ogbuabor, J.E., & Nwosu, E.O. (2019). Do financial stability and institutional quality have impact on financial inclusion in developing economies? A New evidence from Nigeria, International Journal of Sustainable Economy 11(1), 18–40.
  13. Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51.
  14. Argentiero, A., Cerqueti, R., & Sabatini, F. (2021). Does social capital explain the Solow residual? A DSGE approach. Structural Change and Economic Dynamics58, 35-53.
  15. Asongu, S. A., & Odhiambo, N. M. (2020b). Inequality thresholds, governance and gender economic inclusion in sub-Sahran Africa. International Review of Applied Economics, 34(1), 91-114.
  16. Babar, S., Latief, R., Ashraf, S., & Nawaz, S. (2019). Financial stability index for the financial sector of Pakistan. Economies, 7(3), 81.
  17. Baltagi, B.H. (2008). Econometric Analysis of Panel Data, Chichester. John Wiley and Sons Ltd.
  18. Bougatef, K. (2017). Determinants of bank profitability in Tunisia: Does corruption matter? Journal of Money Laundering Control, 20(1), 70-78.
  19. Chen, F. W., Feng, Y., & Wang, W. (2018). Impacts of Financial Inclusion on NonPerforming Loans of Commercial Banks: Evidence from China. Sustainability, 10(9), 3084.
  20. Chinoda, T., & Kwenda, F. (2019). The impact of institutional quality and governance on financial inclusion in africa: A two-step system generalized method of moments approach. Journal of Economic and Financial Studies, 12(1), 1-9.
  21. Cieslik, A., & Goczek, Ł. (2018). Control of corruption, international investment, and economic growtheEvidence from panel data. World Development, 103, 323-335
  22. Cull, R. Demirgüç-Kunt, A., & Lyman, T. (2012). Financial Inclusion and Stability: What Does Research Show? Washington D.C. CGAP.
  23. Dahan, N. M., Doh, J. P., & Raelin, J. D. (2015). Pivoting the role of government in the business and society interface: A stakeholder perspective. Journal of Business Ethics, 131(3), 665-680.
  24. Demirgüç-Kunt, A., Klapper, L., & Singer, D. (2017). Financial inclusion and inclusive growth: A review of recent empirical evidence. World Bank.
  25. Eldomiaty, T., Hammam, R., & El Bakry, R. (2020). Institutional determinants of financial inclusion: evidence from world economies. International Journal of Development Issues, 19(2), 217-228.
  26. Erlando, A., Riyanto, F. D., & Masakazu, S. (2020). Financial inclusion, economic growth, and poverty alleviation: evidence from eastern Indonesia. Heliyon6(10), e05235.
  27. Feng, Y., Wang, X., & Liang, Z. (2021). How does environmental information disclosure affect economic development and haze pollution in Chinese cities? The mediating role of green technology innovation. Science of The Total Environment775, 145811.
  28. Vásquez Tejos, F. J., & Pape Larre, H. (2021) Market Timing and Pecking Order Theory in Latin America. Revista Finanzas y Política Económica 13:2, 79-104.
  29. Gupte, R. Venkataramani, B., & Gupta, D. (2012). Computation of financial inclusion index for India. Procedia-Social Behavioral Sciences, 37, 133–149.
  30. Hayes, F. (2021). Introduction to Mediation, Moderation, and Conditional Process Analysis: A Regression-Based Approach, Guilford Press.
  31. Han, R., & Melecky, M. (2013). Financial inclusion for financial stability: Access to bank deposits and the growth of deposits in the global financial crisis. World Bank.
  32. Hannig, A., & Jansen, S. (2010). Financial inclusion and financial stability: Current policy issues. Tokyo, Japan: Asian Development Bank Institute.
  33. Huque, A. S., & Jongruck, P. (2018). The challenge of assessing governance in asian states: Hong Kong in the Worldwide governance indicators ranking. Asian Journal of Political Science, 26(2), 276-291.
  34. K. Pesaran, M., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels, Journal of Econometrics, 115(1), 1-14.
  35. Iqbal, A. Ali, F. Umar, M. Ullah, I., & Jebran, K. (2021). Product market competition and financial analysts' forecast quality: The mediating role of financial reporting quality. Borsa Istanbul Review.
  36. Jiang, T., & Nie, H. (2014). The stained China miracle: Corruption, regulation, and firm performance. Economics Letters, 123(3), 366-369.
  37. Jose, M., & Garcia, R. (2016). Can financial inclusion and financial stability go hand in hand? Economic Issues, 21(2), 81-103.
  38. Kaufmann, D., Kraay, A., & Mastruzzi, M. (2011). The Worldwide Governance Indicators: Methodology and Analytical issues. Hague journal on the rule of law, 3(2), 220-246.
  39. Khan, H. R. (2011). Financial inclusion and financial stability: Are they two sides of the same coin? Indian Bankers Association and Indian Overseas Bank, Chennai.
  40. Le, T. H., Le, H. C., & Taghizadeh-Hesary, F. (2020). Does financial inclusion impact CO2 emissions? Evidence from Asia. Finance Research Letters,
  41. Lepetit, L., Strobel, F., & Tran, T. H. (2021). An alternative Z-score measure for downside bank insolvency risk. Applied Economics Letters, 1-6.
  42. Lin, Y. C. (2021). Business cycle fluctuations in Taiwan-A Bayesian DSGE analysis. Journal of Macroeconomics70, 103349.
  43. Morgan, P. J., & Pontines, V. (2018). Financial stability and financial inclusion: The case of SME lending. Singapore Economic Review, 1, 111-124.
  44. Neamie, S., & Gaysset, I. (2017). Financial inclusion and stability in MENA: Evidence from poverty and inequality. Finance Research Letters, 24, 230-237.
  45. Nkoa, B. E. O., & Song, J. S. (2020). Does institutional quality affect financial inclusion in Africa? A panel data analysis. Economic Systems, 44(4), 100836.
  46. Nsiah, Anthony Y., Hadrat, Y., Tweneboah, George, Agyei, Kwasi & Baidoo, Samuel Tawiah (2021). The effect of financial inclusion on poverty reduction in Sub-Sahara Africa: Does threshold matter? Cogent Social Sciences, 7:1.
  47. Park, C. Y., & Mercado, R. (2018). Financial inclusion, poverty, and income inequality. Singapore Economic Review, 63(1), 185-206
  48. Pham, M. H., & Doan, T. P. L. (2020). The impact of financial inclusion on financial stability in Asian countries. The Journal of Asian Finance, Economics, and Business, 7(6), 47–59.
  49. Rashid, A. (2020). Financial soundness of single versus dual banking system: Explaining the role of islamic banks. Portuguese Economic Journal, 1-
  50. Ratnawati, K. (2020). The impact of financial inclusion on economic growth, poverty, income inequality, and financial stability in Asia. The Journal of Asian Finance, Economics, and Business, 7(10), 73–85.
  51. Sahay, M. R. Cihak (2015). Financial inclusion: can it meet multiple macroeconomic goals? International Monetary Fund.
  52. Sarma, M. (2015). Measuring financial inclusion. Economics Bulletin, 35(1), 604-611.
  53. Sayılır, O., Dogan, M., & Soud, N. S. (2018). Financial development and governance relationships. Applied Economics Letters, 25(20), 1466-1470.
  54. Sethi, D., & Acharya, D. (2018). Financial inclusion and economic growth linkage. Journal of Financial Economic Policy, 10(3), 369-385.
  55. Shen, C. H., & Chen, T. H. (2014). Performance analysis of liquidity indicators as early warning signals. Working Paper No.30/2014 HKIMR.
  56. Sobel, M. E. (1982). Asymptotic confidence intervals for indirect effects in structural equation models. Sociological Methodology, 13, 290-312.
  57. Thiagarajan, S. (2018). An analysis of performance of commercial banks in Belize during post global recession period. The Journal of Finance, 6(2),33-47.
  58. Thoma, M. V., Bernays, F., Eising, C. M., Pfluger, V., & Rohner, S. L. (2021). Health, stress, and well-being in Swiss adult survivors of child welfare practices and child labor: Investigating the mediating role of socio-economic factors. Child Abuse & Neglect111, 104769.
  59. Vo, D. Nguyen, N., & Van, L. (2021). Financial inclusion and stability in the Asian region using bank-level data. Borsa Istanbul Review, 21(1), 40-66.
  60. Wang, K., & Jiang, W. (2019). Brand equity and firmsustainable performance: The mediating role of analysts' recommendations. Sustainability, 11(4), 1086.
  61. Williams, C. C., & Kedir, A. M. (2016). The impacts of corruption on firm performance: Some lessons from 40 African countries. Journal of Developmental Entrepreneurship. 21(4), 1650022.
  62. Yang Liu, y., Luan, l. ,Wu, W., Zhang, Z., & Hsu, Y. (2021). Can digital financial inclusion promote China's economic growth? International Review of Financial Analysis, 78, 20-33.
  63. Yangdol, R., & Sarma, M. (2019). Demand-side factors for financial inclusion: A cross-country empirical analysis. International Studies, 56(23), 163-185.
  64. Yoshino, N., & Morgan, PJ. (2018). Financial Inclusion, Financial Stability and Income Inequality: Introduction. The Singapore Economic Review,63(1), 1- 7.
  65. Zhang, D., Mohsin, M., Rasheed, A. K., Chang, Y., & Taghizadeh-Hesary, F. (2021). Public spending and green economic growth in BRI region: Mediating role of green finance. Energy Policy153, 112256.
  66. Zulkhibri, M., & Ghazal, R. (2017). The impacts of governance and institution on financial inclusion: Evidence from muslim countries and developing economies. Journal of King Abdulaziz University – Islamic Economics, 30.