The Impact of Financial Inclusion and Trade Openness on Economic Development in the European Union

This study aims to investigate the impact of financial inclusion and trade openness on economic development in a sample of 27 European Union (EU) nations. Further, we classify our sample countries into low-income, high-income, old-EU, and new-EU members to provide more constructive policy and practical implications for the EU countries. To achieve these objectives, we utilize yearly data from 1995 to 2015 and panel econometric techniques. The results show that access, depth, efficiency, and overall development of financial institutions have a significant positive impact on economic growth in the full sample and subsamples. We also find that capital, labor, energy consumption, and trade openness also have an important role in driving the economic growth across these panels. It is important to highlight that the impact of financial inclusion on economic output is more significant in low-income and new-EU member countries than in high-income and old-EU member countries. Given the empirical findings, we provide detailed policy implications for the entire EU and for its subgroups.