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Reaching Financial Inclusion: Necessary and Sufficient Conditions

• Original Research
• Published: 06 January 2022
• Volume 162 , pages 599–617, ( 2022 )

Cite this article

• Helena Susana Amaral Geraldes   ORCID: orcid.org/0000-0002-6581-3454 1 ,
• Ana Paula Matias Gama   ORCID: orcid.org/0000-0002-8064-6244 1 &
• Mário Augusto   ORCID: orcid.org/0000-0001-7345-1679 2  

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Financial inclusion is a vital development policy concern; different combinations and conditions of access to (supply) and use of (demand) financial services may predict levels of financial inclusion. With a fuzzy set qualitative comparative analysis, conducted across 61 countries worldwide, the current research establishes that financial literacy and human development are conditions of high financial inclusion; supply-side drivers, such as bank concentration and bank branches, represent substitutive conditions for attaining high levels of financial inclusion. With separate analyses of a split sample, designating developed and developing countries, the authors also determine that the absence of financial literacy and human development, as demand-side drivers, leads to diminished financial inclusion for both sets of countries. In turn, this research offers novel ideas for achieving more efficient policies to prompt financial inclusion.

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Acknowledgements

This work was funded by FCT, Fundação para a Ciência e a Tecnologia, I.P., Projects: PTDC/EGE-OGE/31246/2017, UIDB/04630/2020; UIDB/05037/2020.

The authors acknowledge financial, research and administrative support from the FCT (UBI&NECE: UIDB/04630/2020; PTDC/EGE-OGE/31246/2017).

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Helena Susana Amaral Geraldes & Ana Paula Matias Gama

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Geraldes, H.S.A., Gama, A.P.M. & Augusto, M. Reaching Financial Inclusion: Necessary and Sufficient Conditions. Soc Indic Res 162 , 599–617 (2022). https://doi.org/10.1007/s11205-021-02850-0

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Accepted : 16 November 2021

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DOI : https://doi.org/10.1007/s11205-021-02850-0

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Peer-reviewed

Research Article

New insights into the impact of financial inclusion on economic growth: A global perspective

Roles Writing – original draft

* E-mail: [email protected]

Affiliation Faculty of Economics, Kabul University, Kabul, Afghanistan

• Mohammad Naim Azimi

• Published: November 17, 2022
• https://doi.org/10.1371/journal.pone.0277730
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Financial inclusion is critical to inclusive growth, proffering policy solutions to eradicate the barriers that exclude individuals from financial markets. This study explores the effects of financial inclusion on economic growth in a global perspective with a large number of panels classified by income and regional levels from 2002–2020. The analysis begins with the development of a comprehensive composite financial inclusion index comprised of penetration, availability, and usage of financial services and the estimation of heterogeneous panel data models augmented with well-known variables. The results obtained from the panel cointegration test support a long-run relationship between economic growth, financial inclusion, and the control variables in the full panel, income-level, and regional-level economies. Furthermore, the study employs a GMM (generalized method of moment) approach using System-GMM estimators to examine the effects of financial inclusion and the control predictors on economic growth. The results of the GMM model clearly indicate that financial inclusion has a significantly positive impact on economic growth across all panels, implying that financial inclusion is an effective tool in fostering rapid economic growth in the world. Finally, the study delves into the causality relationship between the predictors and provides statistical evidence of bidirectional causality between economic growth and financial inclusion, whereas it only supports unidirectional causality relationships from credit to the private sector, foreign direct investment, inflation rate, the rule of law, school enrollment ratio, and trade openness with no feedback causality. Moreover, the study fails to provide causality evidence from the age dependency ratio and population to economic growth.

Citation: Azimi MN (2022) New insights into the impact of financial inclusion on economic growth: A global perspective. PLoS ONE 17(11): e0277730. https://doi.org/10.1371/journal.pone.0277730

Editor: Ricky Chee Jiun Chia, Universiti Malaysia Sabah, MALAYSIA

Received: September 17, 2022; Accepted: November 3, 2022; Published: November 17, 2022

Copyright: © 2022 Mohammad Naim Azimi. This is an open access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Data Availability: The datasets for GDP growth, credit to the private sector, age dependency ratio, inflation rate, school enrollment rate, population growth rate, and trade openness (total imports of goods and services plus total exports of goods and services) are collected from the World Development Indicators that are available at ( https://databank.worldbank.org/source/world-development-indicators ). Datasets for the indicators of banking penetration, availability, and usage of financial services are collected from IMF’s Financial Access Survey available at ( https://data.imf.org/?sk=E5DCAB7E-A5CA-4892-A6EA-598B5463A34C ). Dataset for the rule of law is collected from the World Bank’s Worldwide Governance Indicators available at ( https://info.worldbank.org/governance/wgi/ ). All datasets are publicly available for replications by scholars.

Funding: The author received no specific funding for this work.

Competing interests: The author has declared that no competing interests exist.

1. Introduction

Financial inclusion is one of the growing research topics that has recently gained popularity in the literature and received considerable attention from scholars, academics, and policymakers alike. However, the theory of financial inclusion emerged during the 1930s (see, inter alia , [ 1 ]), but the root of a wide-ranging empirical literature dates back to the early 2000s [ 2 , 3 ]. Besides, since the spark of the millennium development goals by the United Nations, the policy orientation of the financial inclusion nexus with socioeconomic indicators, specifically economic growth, among all others, has gained prominence in the formulation and implementation of strategies for sustainable development regardless of the social and economic structure of the countries. The multi-dimensionality and non-uniformity of financial inclusion outreach [ 4 ] is assumed to foster economic growth through the gradual integration of people into a formal financial system by making financial services affordable and available at a reasonable cost, and, thus, it effects are highly pronounced vis-à-vis other growth drivers [ 5 ]. Although financial inclusion is observed as an effective instrument of social inclusion in satisfying the economic desires of poor and financially excluded individuals directly, it combats extreme poverty, reduces income inequality, and encourages human capital creativity indirectly, which, in turn, has a significant impact on the economic growth of a country. In this regard, perhaps, each jurisdiction requires contextual approaches translated into formal policy frameworks to facilitate an effective and extensive outreach of financial inclusion both for included and excluded segments of society to achieve a higher rate of economic growth in the long run [ 6 ]. However, financial inclusion-driven growth takes longer than general theoretical expectations, but the development of its policy framework must articulate three key principles: affordability and undue availability of financial services for all segments of society on the supply side; financial literacy and extensive accessibility on the demand side; and consumer protection, accountability, and institutional quality on the governance side [ 7 ].

In recognition of the importance of financial inclusion on economic growth, however, most of the recent studies have departed from the foundational theory of financial inclusion and dived either into endogenous or exogenous models. But regardless of the methodology and magnitude of the effects presented, the available empirical literature has taken three main directions. The first group of studies have examined the effects of financial inclusion on economic growth and other socioeconomic predictors in country-specific contexts with limited outcome generalizability (see, for instance, [ 8 – 14 ]). The second group of studies on financial inclusion impact has focused on specific regional classifications, such as Sub-Saharan Africa (SSA), Asia’s developing economies, the One Belt One Road Initiative (OBRI), the Organization for Islamic Cooperation (OIC), and the South Asian Association for Regional Cooperation (SAARC) member countries (see, inter alia , [ 15 – 19 ]). The third group of empirical studies has focused either on the panels of mixed economies or developed and developing economies (see, for example, [ 20 – 25 ]).

Although an exception is given to empirical studies by Okonkwo and Ifeanyi [ 26 ] in low and middle-income countries; Van and Linh [ 27 ] in East Asia and the Pacific region; Emara and Mohieldin [ 28 ] in the Middle-East and North Africa (MENA); and Ghassibe et al. [ 29 ] in the Middle-East and Central Asia, the existing literature reports the non-existence of a comprehensive empirical study to have examined the effects of financial inclusion on economic growth from a global perspective to provide both statistical evidence on the scale of effects and comparative results by region and income-level economies to support extensive policy formulation. Therefore, it is imperative to direct the study by formulating three important questions. First, does financial inclusion have positive effects on economic growth in global, regional, and income-level economies, though some recent empirical studies provide counter-evidence? Second, are the effects of financial inclusion non-monotonic and vary across panels (global, regional, and income-level) due to economic size as represented by GDP growth? Third, are there any causality relationships between financial inclusion and economic growth with a feedback response?

The present study is an attempt to delve into the effects of financial inclusion on economic growth by controlling for major macroeconomic predictors from global, income-level, and regional-level perspectives. As an empirical fact, the literature is still evolving to understand the magnitude, extent, and direction of the effects of financial inclusion on economic growth—an emerging paradox—and the number of studies that have focused on country-specific, developed, and developing economies with mixed and even confounded results is not sufficient to support a global agenda on the subject. Moreover, the scarcity of a comprehensive empirical study highlighting the effects of financial inclusion on economic growth from a global perspective to facilitate extensive policy comparison is a significant missing gap in the literature and forms the key motivation for the present study.

The remaining sections of the study are structured as follows. Section two presents a review of literature discussing both theoretical and empirical concepts of financial inclusion and growth. Section three presents the data, variables, and construction methodology of the composite financial inclusion index. Section four develops the theoretical model of the study. Section five explains the estimation strategy of the panel data. Section six presents the results and discusses the findings. Section seven concludes the study.

2. Literature review

2.1 theoretical background.

The existing literature on the finance-growth nexus owes to Schumpeter’s [ 1 ] initial theory, stating that financial intermediaries are essential to advance technical innovations in businesses to ensure stable economic growth through saving mobilization, project evaluation, risk analysis, transaction, and money circulation conduits [ 30 ]. The theory predicts that missed opportunities are caused by inactive assets held both at personal and organizational disposal due to the absence of financial intermediaries to mobilize savings and enlarge money circulation. This, in turn, forces people to rely on wage-based savings and limits money circulation through financially profitable conduits. On the other hand, market imperfection insulates poor citizens from eluding poverty through limitation of access to formal financial products [ 15 ], whereas wider access to financial services has been excoriated as one of the most useful tactics for combating poverty, owing to the fact that higher levels of financial inclusion are linked to lower levels of income inequality and higher economic growth [ 31 ]. Since then, scholars have attempted to build various theoretical models to capture the notion of growth around the concept of Schumpeter and have provided many definitions to describe financial services (see, inter alia , [ 32 – 35 ]). Among all others, Sarma [ 36 ] has provided a comprehensive definition for the notion of financial services—that is, "financial inclusion" as a set of formal financial services to bankable individuals and the process through which such services are made available, accessible, and usable at reasonable economic cost. Thus, in line with this definition, financial inclusion can be regarded as one of the key drivers of economic growth through an increase in general consumption, higher profitable investments, a reduction in monetary overhang by the availability of financial services, and a shift from wage-based savings to return on investments [ 37 ]. Therefore, it entails two main principles that postulate the theory of financial inclusion. First, the beneficiary theory of financial inclusion, which comprises vulnerable group theory, dissatisfaction theory, and public good theory; and second, the theory of delivery of financial inclusion, comprising public money theory, echelon theory, and private money theory [ 38 ]. Thus, the latter—that is, the theory of delivery of financial inclusion—forms the theoretical direction of the present study. However, far from the basic theory of financial inclusion, almost all recent studies have considered either endogenous or exogenous growth models.

2.2 Measurement of financial inclusion

Although based on the multi-faceted theory of financial inclusion, there are numerous definitions that have a general consensus on the outreach of financial inclusion to provide excessive financial services to the bankable members of a nation, prioritizing the gradual integration of the excluded people into the formal financial system of an economy. Thus, giving rise to the conceptual importance, a comprehensive tool is essential to measure the impact of financial inclusion on various socioeconomic indicators. Despite other quasi-mechanisms (see, inter alia , [ 10 , 38 – 40 ]), this study follows Sarma [ 41 ], who enhanced the construction methodology of the composite financial inclusion index using a distance-based approach dissimilar to the human development index adopted by the United Nations Development Programs (UNDP), using average dimension indexes. A three-dimensional approach to construct the composite financial inclusion index is the banking penetration, availability, and usage of financial services, which are defined as follows.

Banking penetration—that is, access to financial services—indicates the number of users of financial services in an economy, measured by the number of deposit accounts per 1,000 adults and the number of depositors per 1,000 adults [ 41 – 43 ]. Here, the first indicator reflects the size of the bankable segment of society, while the second indicator shows the total number of banked individuals, comprising both active and non-active account holders with financial institutions [ 44 , 45 ]. Next is the availability dimension, which comprises two key indicators, such as the number of banks per 100,000 adults and the number of automated teller machines (ATMs) per 100,000 adults. It reflects the geographical availability of financial services in terms of banking outlets, bank branches, and the ATMs that are available for utilization [ 40 , 46 ]. Third is the usage dimension, which also comprises two key indicators, such as the number of loan accounts in banks per 1,000 people and the number of borrowers from banks per 1,000 adults. This dimension measures how customers use financial services in the form of transfers, remittances, borrowing, and savings to reflect the efficiency and inclusiveness of the financial services that are available to people in an economy [ 35 , 47 ].

2.3 Review of recent studies

Although the existing literature still evolves in presenting a sufficient number of empirical works on the effects of financial inclusion on various socioeconomic indicators to encourage comprehensive macroeconomic policy attempts (see, for instance, [ 48 , 49 ]), it owes its first study to Marc et al. [ 50 ], who claimed to have found statistical relationships between financial structure and economic growth. For brevity, this section reviews the most recent studies about the effects of financial inclusion on economic growth in different geographical contexts. For instance, Estrada et al. [ 51 ] examined the effects of financial systems, banks, and equity markets on economic growth in 125 developing countries. The authors have used simple methods and found that the financial system’s outreach postulates significant effects on economic growth, though the results might be confounded due to misspecification and the choice of financial inclusion predictors. Kpodar and Andrianaivo [ 52 ] evaluated the effects of information and communication technologies, mobile phone rollout, and the number of deposits per head—that is, the predictors of financial inclusion—on economic growth in a sample of African economies from 1988–2007. The authors employed the system generalized method of moment technique to overcome any endogeneity issue and found that financial inclusion is an effective tool to increase economic growth in the context of Africa.

Masoud and Hardaker [ 53 ] employed an endogenous growth model and a set of data for twelve years to examine the effects of stock market development and the banking sector on economic growth in forty-two emerging economies. The authors found that the stock market has a significant influence on the economic growth of the emerging markets and that they move together in the long run. Moreover, they argue that the banking sector is complementary to the stock market in easing customers’ access to their desired financial services. Lenka and Sharma [ 54 ] examined the effect of financial inclusion (penetration, access, and usage dimension) on economic growth in India. The authors used a set of time-series data from 1980–2014, a principal component analysis method to construct the financial inclusion index and the autoregressive distributed lag (ARDL) and error-correction methods to estimate the short and long-run effects of financial inclusion on growth. The authors found that financial inclusion has a positive effect on economic growth both in the short and long runs. Moreover, they also provided evidence of a unidirectional relationship between financial inclusion and economic growth.

Le et al. [ 55 ] tested the linkage between financial inclusion, growth, and other socioeconomic indicators in 20 Asian economies from 2011–2016 using a random effects model for panel data analysis. The authors found that Asian countries with a higher growth rate have higher financial inclusion to channelize higher economic growth; an inverse association between financial inclusion and unemployment rate; and the role of financial literacy in effectively utilizing the available financial services. Erlando et al. [ 56 ] examined the effects of financial inclusion on economic growth using a set of panel data for Eastern Indonesia. The authors employed the modified vector autoregressive method of Toda and Yamamoto, bivariate causality, and dynamic panel vector autoregressive methods. They found a statistically strong nexus between financial inclusion and economic growth, noticing that financial inclusion spurs economic. On the other hand, Nizam et al. [ 57 ] analyzed the effects of financial inclusion on economic growth in 63 developed and developing countries over the period from 2014–2017 using threshold regression analysis. The authors found that there is a threshold effect of financial inclusion on economic growth, implying that the effects are positive but are translated at a higher level than in the low level of the financial inclusion index.

Moreover, the existing literature indicates a counter-example about the negative effects of financial inclusion on economic growth by Rodríguez et al. [ 58 ]; who analyzed the relationships between them in 71 countries using a set of data spanning from 2007–2016; and applied ordinary least squares, the generalized method of moment with two-way fixed effects, and Granger causality methods to test their developed hypotheses. They found a negative association between financial inclusion and economic growth, highlighting that financial inclusion exerts an adverse effect on growth and a statistically significant causality nexus between them. Meanwhile, Shen et al. [ 59 ] used datasets from the WDI (World Development Indicators) and the IMF (International Monetary Funds) to examine the effects of financial inclusion index on economic growth in 105 countries. The authors used spatial data techniques to analyze the relationships between digital financial inclusion, growth, and other control variables and found that digital financial inclusion has a significantly positive impact on the economic growth of the countries.

Finally, Ozturk and Sana [ 60 ] examined the effects of financial inclusion on economic growth and environmental quality in forty-two countries linked with the One Belt One Road Initiative (OBRI) using a set of data spanning from 2007–2019. The authors employed pooled ordinary least squares (OLS), two-stage OLS, and the generalized method of moment (GMM) models. They found that financial inclusion has a positive impact on economic growth but has negative effects on environmental quality through the flow of CO2 emissions.

The purview of the existing literature reveals that the empirical studies conducted to examine the effects of financial inclusion on economic growth have left two significant gaps. First, it reports no comprehensive study to reflect the impact of financial inclusion on growth from a global perspective and no comparative results for cross-country groupings by income and regional levels using unified analytical methodology to highlight comprehensive policy implications to support the literal arguments of the paradigm shift—that is, a shift from financial development to financial inclusion as a global agenda. Second, the mixed and confounded results presented by the existing literature have enhanced the paradox of the effects of financial inclusion as a driver of growth. Therefore, to fill these gaps, it is important to formulate three key hypotheses. H 1 : As claimed by the initial concept, financial inclusion has a positive impact on economic growth regardless of economic size and structure across the globe. H 2 : Though the effects are positive on growth, they are non-monotonic and specified by the size of the economies, viz-à-viz, the GDP. H 3 : While financial inclusion explains economic growth, it is strongly affected by the growth rate of an economy—that is, there is a bidirectional link between them.

3. Data and variables

The datasets contain 218 countries across the world, employing annual observations spanning from 2004–2021 compiled from reliable sources and are organized by various panels reflecting income and regional level economies reported by the World Bank classification report [ 61 ]. The variables used are consistent with recent empirical literature and include GDP growth, the composite financial inclusion index, school enrollment rate, age dependency ratio, credit to the private sector, the rule of law, inflation rate, trade openness, the Gini index, and population growth rate. Table 1 provides complete information about them. The study employs GDP growth as the dependent variable proxied for economic growth and the composite financial inclusion index as the independent and key variable of interest. However, the construction method of the composite financial inclusion index (CFII) is discussed later; the present study controls for several macroeconomic predictors to avoid any omitted variable bias. Thus, the school enrollment ratio (SER) is used as a proxy for human capital development. Intuitively, an increase in school enrollment increases skills, knowledge, and creativity, thereby stimulating economic growth. Moreover, the age dependency ratio is used to control its effects on growth. Theory predicts that either too young or too old citizens would be cost-burdensome and negatively impact the growth. Credit to the private sector may also influence economic progression, viz-à-viz greater access to credit facilitates higher capital investment, thus spurring economic growth. Studies by Le et al. [ 55 ], Sayed and Shusha [ 43 ], and Rashdan and Eissa [ 45 ] suggest including the inflation rate as a control variable when delving into the effects of CFII on growth. It is important to understand the effects of higher inflationary episodes that cause the saving rates to decrease and suppress the citizens’ use of desired financial services. In light of the globalized economy, it is essential to augment the trade openness in the model to measures the cross-country access of financial services by traders. Despite controlling for the income inequality proxied by Gini index, the study also controls for the effects of institutional quality proxied by the rule of law. It is widely documented that the rule of law is an appropriate proxy for institutional quality when analyzing the effects of CFII on growth [ 62 ]. Finally, population growth rate is also used to control its effects on economic growth.

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https://doi.org/10.1371/journal.pone.0277730.t001

This method of CFII construction is widely used in financial econometrics as a standardized predictor of comprehensive financial inclusion index (see, for instance, [ 43 , 46 , 66 ]).

4. Model specification

5. Econometric methods

5.1 cointegration test.

5.2 GMM approach

Moreover, GMM estimation has several empirical advantages over the common techniques for panel data analysis. First, it controls for omitted variable bias, correlation between the variables, and any potential measurement errors. Second, it produces consistent and accurate results of the coefficients for panel samples with N > T. Third, it corrects the unobserved endogeneity by transforming the regressors through differencing and removing the fixed effects. Fourth, in terms of heteroskedasticity and serial correlation, the Sys-GMM, which is an augmentation of the Diff-GMM, is more consistent, robust, and efficient.

As suggested by the existing literature, in this study, the analysis begins with the estimation of Eq (4) by pooled ordinary least squares (OLS) and the least squares dummy variable (LSDV) using fixed effects methods. Doing so leads the study to select an appropriate GMM estimator and avoid misspecification. Therefore, the pooled OLS panel estimate for φ is used as an upper bound, while the fixed effect estimates are used as the lower bounds. If the Diff-GMM estimates are close to or below the fixed effects estimates, Sys-GMM is more consistent and efficient as Diff-GMM would be biased due to weak instrumentation. Moreover, it is also important to test for instruments validity, for which Hansen’s [ 81 ] J-statistics and Sargan’s [ 82 ] methods are employed to test the validity of the instrumental variables augmented in the GMM model. Rejecting the null hypothesis implies that the instruments are invalid [ 83 ], while failing to reject the null implies otherwise. Furthermore, this study tests the null of no second-order serial correlation in the error term using the Arellano and Bond [ 79 ] method. Failing to reject the null implies that no second-order serial correlation exists and that the moment conditions are appropriately specified.

5.3 Panel causality test

6. Results and discussion

6.1 descriptive statistics.

The analysis begins with some important summary statistics about the variables, reported in Table B1 of Appendix B in S2 Appendix . It shows that the mean value for GDP growth is 2.74% for the full panel, while it is 2%, 4.48%, 5.69%, 6.13%, 1.52%, 1.11%, 4.91%, 1.41%, 2.12%, 3.87%, 1.78%, 5.71%, and 3.99% for low-income, middle-income, upper middle-income, high-income, OECD, non-OECD, East Asia and the Pacific, Europe and Central Asia, Latin America and Caribbean, MENA, North America, South Asia, and Sub-Saharan African economies, respectively. On the other hand, the summary statistics indicate that the mean value for the composite financial inclusion index is 0.26, 0.78, 0.73, 0.69, 0.71, 0.82, 0.74, 0.71, 0.73, 0.68, 0.74, 0.79, 0.68, and 0.72 for the full panel, low-income, middle-income, upper middle-income, high-income, OECD, non-OECD, East Asia and the Pacific, Europe and Central Asia, Latin America and Caribbean, MENA, North America, South Asia, and Sub-Saharan African economies, respectively. It reveals that among all others, although the growth rate of the high-income countries has been the highest throughout the period, their CFII rank has relatively been lower than those of the low-income, middle-income, upper middle-income, OECD, MENA, North America, South Asia, and Sub-Saharan African countries. Moreover, another interesting indicator is the rule of law, which shows that its mean value does not necessarily correspond to the growth rate and the mean value of the financial inclusion outreach. For instance, the mean value of the rule of law is 90.33 percentile rank for high-income economies, which is the highest among all others, while its growth rate and CFII average rate are reported otherwise. For brevity, one can read through the variations among the predictors, but the study proceeds to delve into the cointegration among them.

6.2 Cointegration analysis

To ascertain the long-run nexus amid predictors, the Westerlund and Edgerton [ 77 ] cointegration test by LM bootstraps was computed, and the results are shown in Table 2 . For the rejected null hypothesis of no cointegration, except for the low-income economies, the findings reveal that there exists significant cointegration among the predictors in all panels. This implies that panel predictors move together in the long run—that is, the composite financial inclusion index, which is the key variable of interest, and other explanatory variables postulate significant effects on economic growth and cannot be deviated from long-run equilibrium. The results are consistent with the findings of Nwanne [ 85 ], Hassan [ 86 ], Ratnawati [ 87 ], and Ain et al. [ 88 ], who also established statistical long-run relationships between financial inclusion and economic growth. Moreover, the results satisfy the underlying theory of growth-financial inclusion [ 14 ], implying that excessive financial inclusion outreach facilitates higher capital mobility and integration of a higher proportion of unbanked individuals into the formal financial system, which leads to higher economic growth in the long run.

https://doi.org/10.1371/journal.pone.0277730.t002

6.3 GMM estimates

As for the key results of interest, Tables 3 and 4 report the results of robust GMM estimation—that is, 1Sys-GMM, 2Sys-GMM, and Diff-GMM for the full panel, income level groupings, and regional economies. As discussed earlier, using empirical diagnostics, the Sys-GMM estimators are preferred over the Diff-GMM, and thus, the interpretation of the results and discussion of findings are based on the 2Sys-GMM results, though the results of the 1Sys-GMM are similar to those of the 2Sys-GMM. For robustness, it follows the Windmeijer [ 89 ] correction in the standard errors of the 2Sys-GMM estimation to control for the downward biasedness of standard errors, controlling the instrument matrix, observation weight, the difference-in-Sargan/Hansen test of instrument validity, and the forward orthogonal transform, which is an alternative to the differencing approach of Arellano and Bover [ 90 ], preserving sample size in panels with observational gaps.

https://doi.org/10.1371/journal.pone.0277730.t003

https://doi.org/10.1371/journal.pone.0277730.t004

For simplicity and use of limited space, the results of the pooled OLS and LSDV fixed effects models are omitted from the present study and will be available upon request. Moreover, to simplify reading through the results and to highlight significant findings, the study reports the results by income and regional classifications as shown in Tables 3 and 4 .

6.3.1 Full panel.

The results of the full panel, thereby the world panel, reflect the overall effects of financial inclusion—a key variable of interest—and other explanatory predictors on economic growth, consisting of (218) countries. The results indicate that financial inclusion proxied by CFII (composite financial inclusion index) has a significantly positive impact on the world’s economic growth, implying that one percent increase in financial inclusion (penetration, availability, and usage of financial services) increases the world’s economic growth by 0.316%, ceteris-paribus. The results are consistent with the theoretical expectations about the positive growth-financial inclusion nexus and empirical findings of Kim et al. [ 15 ] for 55 member countries of the OIC (Organization of Islamic Cooperation), Siddik et al. [ 19 ] for 24 Asian developing economies, Singh and Stakic [ 18 ] for 8 SAARC (South Asian Association for Regional Cooperation) member countries, and Huang et al. [ 17 ] for 27 countries of the European Union. Though, for brevity, other explanatory variables, such as age dependency ratio (–), inflation rate (–), foreign direct investment (+), school enrollment ratio (+), trade openness (+), and population growth (–) have their varying expected effects on economic growth, the rule of law, which is augmented in the model to ascertain its mediating effects on growth, shows that institutional quality is significant to ease the impact of financial inclusion on growth. For instance, the results demonstrate that a 1% increase in the percentile rank of the rule of law causes economic growth to increase by 0.321% in a global context. This is supported by recent empirical findings by Valeriani and Peluso [ 91 ], Nguyen et al. [ 68 ], Salman et al. [ 12 ], and Radulović [ 92 ], who also documented the effects of institutional quality on economic growth. Furthermore, an economic intuition suggests that higher institutional quality—that is, comprehensive rule of law—facilitates indirect economic growth through various conduits, one of which is financial inclusion outreach.

Moreover, the control variables, such as age dependency ratio, inflation rate, and population growth rate, decrease economic growth by 0.024%, 0.010%, and 0.081%, respectively. The negativity of the age dependency ratio implies the reduction of productivity in the world and a declining long-run trend in growth, whilst the negativity of the inflation rate on growth may additionally cause excessive cost-burden for bankable customers and reduce the scope of financial inclusion. Although some recent studies found that population growth has a positive impact on the economy, the current study finds that a 1% increase in population growth rate reduces economic growth by 0.081%. This is consistent with the findings of Easterlin [ 93 ], Klasen [ 11 ], and Mason and Lee [ 94 ] on the combined population projected effects on lowering economic growth by 1 percentage point per year.

6.3.2 Income-level.

However, the results are statistically significant for all income-level economies, but they reveal that for low-income countries, financial inclusion has a positive impact and increases economic growth by 0.085%, while comparatively, it increases the economic growth of middle-income, upper middle-income, high-income, OECD, and non-OECD member countries by 0.119%, 0.212%, 0.419%, 0.405%, and 0.146%, respectively. This highlights an important variation in the effects of financial inclusion on economic growth, varying with respect to the income level of the countries. Considering the rule of law as a proxy for institutional quality, the results indicate that its effect also varies across income-level groupings. It shows that, ceteris paribus, one percentile rank increase in the rule of law causes economic growth by 0.112%, 0.348%, 0.417%, 0.537%, 0.642%, 0.240% in low-income, middle-income, upper middle-income, high-income, OECD, and non-OECD countries, respectively. Thus, the variation of the effects of financial inclusion may be due to two key reasons: the economic size of the countries and the implementation of the rule of law in governing, allocating, and using financial resources for the sake of rapid growth. Consistently, Azimi [ 95 ] also clearly shows that the non-monotonic effects of the rule of law are based on the varying economic size of the country. The findings indicate that the higher the income level, the greater the impact of financial inclusion on economic growth will be. Furthermore, the results show that the theoretically expected effects of the control variables, such as age dependency ratio (–), credit to the private sector (+), foreign direct investment (+), inflation rate (–), school enrollment rate (+), trade openness (+), and population growth rate (–) on the economic growth of the income-level grouping are achieved. Not surprisingly, the impact of the control variables on growth is also found to be non-monotonic.

For instance, the credit to the private sector has a significantly positive effects on growth, showing that a 1% increase in credit to the private sector, the economic growth increases by 0.130%, 0.322%, 0.332%, 0.348% in low-income, middle-income, upper middle-income, and high-income economies, respectively. Olowofeso et al. [ 24 ], Cuong [ 23 ], and Samuel-Hope et al. [ 22 ] also found statistical evidence of the positive effects of credit to the private sector on economic growth in various economic contexts. On the other hand, foreign direct investment also posits positive effects on growth. Its effect on growth is 0.514%, 0.438%, 0.502%, 0.612%, 0.441%, and 0.604% for low-income, middle-income, upper middle-income, high-income, OECD (Organization for Economic Cooperation and Development), and non-OECD member countries, respectively. Moreover, the negative association between the inflation rate and the age dependency ratio is lower in high-income but higher in low-income economies. For example, the negative effect of the inflation rate on growth is -0.382% in low-income countries, while it is -0.118%, -0.218%, and -0.117% in middle-income, upper middle-income, and high-income countries, respectively. Studies by Babajide et al. [ 96 ]; Lenka and Sharma [ 97 ]; Dahiya and Kumar [ 13 ]; and Okonkwo and Ifeanyi [ 26 ] also provide statistical evidence of the effects of financial inclusion on economic growth in low and middle-income countries. Consistently, Sethi and Acharya [ 21 ] found a significant association between growth and financial inclusion in 31 countries across the world, consisting of low, middle, and high-income economies, while Li et al. [ 20 ] extended the statistical findings of the effects of financial inclusion in OECD member countries, supporting the findings of the present study.

6.3.3 Regional-level.

To facilitate better analysis and deeper insights into the effects of financial inclusion on economic growth, the present study delves into the matter using the regional classification of the countries. Comparatively, the results provide much deeper views of the growth-financial inclusion association in regional contexts. The results demonstrate that financial inclusion, which is the key variable of interest, is statistically significant at 1% level and spurs economic growth by 0.218% in East Asia and the Pacific, 0.209% in Europe and Central Asia, 0.408% in Latin America and the Caribbean, 0.501% in MENA, 0.256% in North America, 0.783% in South Asia, and 0.642% in Sub-Saharan African countries. Comparatively, the results indicate that South Asia’s growth has the highest reaction to financial inclusion among all others, while Europe and Central Asia’s growth rate has the lowest response to financial inclusion. The results are consistent with the findings of Van and Linh [ 27 ] in East Asia and the Pacific and Abdul Karim et al. [ 25 ] in sixty developed and developing economies, Adalessossi and Kaya [ 98 ] and Wokabi and Fatoki [ 99 ] in African countries, Thathsarani et al. [ 2 ] in eight South Asian countries, Gakpa [ 100 ] and Adedokun and Ağa [ 16 ] in Sub-Saharan African countries, Emara and Mohieldin [ 28 ] in MENA, and Ghassibe et al. [ 29 ] in the Middle-East and Central Asia, who also found that financial inclusion is a significant determinant of economic growth and an effective tool to facilitate greater financial integration. From a macroeconomic standpoint, increasing unbanked individuals’ access to financial services leads to increased money circulation and credit exchange in the economy, resulting in a significant impact on stable economic growth [ 101 ], whereas integrating unbanked individuals into the formal financial system results in a meaningful reduction in tax avoidance, money laundering, and transaction costs [ 57 ]. However, the proportional impact of financial inclusion is relatively lower than that of financial deepening, but it continues to encourage more unbanked populations to join the formal financial system to generate higher impacts on economic growth. For instance, in East Asia and the Pacific, the results indicate that financial inclusion significantly increases economic growth by 0.218%, while other predictors, such as credit to the private sector, foreign direct investment, the rule of law, school enrollment rate, and trade openness, also exert positive effects on growth by 1.378%, 0.783%, 0.321%, 1.032%, and 1.016%, respectively. A quick intra-comparison shows that financial deepening, human capital, and economic openness—that is, credit to the private sector, school enrollment ratio, and trade, respectively—have much higher effects on growth than financial inclusion in East Asia and the Pacific. The same results apply to all regional economies, except for South Asian countries that exhibit a different scale but similar magnitude. It is found that, in South Asia, a 1% increase in financial inclusion significantly causes economic growth to increase by 0.783%. With respect to both the inter-region and intra-region comparisons, the effects of financial inclusion on growth are higher than in other regional and income-level economies. This could be due to obvious factors such as significant advancements and support for financial inclusion in South Asia’s three most populous countries, India, Pakistan, and Bangladesh, which are constantly expanding the reach of their financial inclusion services. This finding is also supported by Thathsarani et al. [ 2 ] in eight South Asian economies, who found that the comparative effects of financial inclusion are lower than other financial development predictors on growth, and by Park and Mercado [ 102 ] in thirty-three developing economies, who provided similar findings on the comparative effects of financial inclusion on economic growth. For the control variables, the results indicate that age dependency ratio, inflation rate, and population growth are statistically significant and posit negative impacts on the economic growth of the regional economies, while credit to the private sector, foreign direct investment, school enrollment rate, and trade openness have positive associations with economic growth. Moreover, the results also show that institutional quality proxied by the rule of law has a significantly positive impact on economic growth, whereas, as theory suggests, higher institutional quality leads to efficient and effective delivery of financial services and thus paves the way for swift economic growth. The results reported in Tables 3 and 4 are statistically robust. The diagnostic checks of the relevant tests are reported at the rear part of the tables.

6.4 Causality nexus

Finally, the present study computes the panel causality test of Dumitrescu and Hurlin [ 84 ] and reports the results in Table 5 , highlighting interesting results. They reveal that there is a significant bidirectional causality relationship between economic growth and financial inclusion at a 1% level in the full panel, income-level panels, and regional panels. Since feedback responses—that is, reverse causality statistics of the control variables—have not been significant, they are not reported in Table 5 . The results indicate that except for the age dependency ratio (ADR) and population growth rate (PGR), which are insignificant in causing economic growth in the full and all other classified panels, the rest of the variables, such as credit to the private sector, foreign direct investment, inflation rate, the rule of law, school enrollment ratio, and trade openness, are significant enough to exhibit unidirectional causality to cause economic growth. The results support the findings of Sharma [ 103 ], Mlachila et al. [ 104 ], Sethi and Acharya [ 21 ] in a panel of both developed and developing countries, and Gourène and Mendy [ 105 ] in the West African Economic and Monetary Union, who also found directional causality relationships between financial inclusion and economic growth in different economic contexts. The results are in contrast with those of Asmalidar and Pratomo [ 106 ], who claimed that there is no causality nexus amid financial inclusion and economic growth.

https://doi.org/10.1371/journal.pone.0277730.t005

7. Conclusion

The present study explored the effects of financial inclusion on the world’s economic growth and extended the analysis to delve into how financial inclusion influences economic growth in a number of panels classified by income-level (low, middle, upper middle, high, OECD, and non-OECD) economies and regional-level (East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, MENA, North America, South Asia, and Sub-Saharan Africa) economies using panel datasets spanning from 2002–2020 compiled from the World Bank’s World Development Indicators and IMF’s Financial Access Survey databases. To test the developed hypotheses, the study employed heterogeneous robust panel cointegration by bootstraps, GMM (generalized method of moment), and heterogeneous panel causality tests for two key objectives: ascertaining the scale of the effects of financial inclusion on economic growth and the causality nexus among them. First, to provide consistent results, the study used the methodology proposed by Sarma [ 41 ] and developed a comprehensive composite financial inclusion index comprised of penetration, availability, and usage of financial services for all panels under consideration. Next, the study provides statistically significant cointegration between composite financial inclusion, economic growth proxied by GDP growth, and other control variables, such as age dependency ratio, credit to the private sector, foreign direct investment, inflation rate, the rule of law, school enrollment ratio, trade openness, and population growth rate. The cointegration results support the idea that, in the long run, financial inclusion moves in tandem with economic growth, suggesting a thorough examination of their interactions. To that end, led by the nature of the data, the study employed a GMM approach using 1Sys-GMM, 2Sys-GMM, and Diff-GMM estimators to examine the effects of financial inclusion and other control predictors on economic growth. Based on statistical satisfaction, 2Sys-GMM has attained the preference and, thus, the conclusion is based on the findings from 2Sys-GMM estimators. The results clearly indicate that financial inclusion is a significant variable to influence economic growth in the full panel, income-level panels, and regional-level panels and causes the economies to foster rapid growth. The results obtained from the GMM estimates encouraged the study to delve into the causality relationship between financial inclusion, economic growth, and the control variables. In this regard, the results of the Dumitrescu and Hurlin [ 84 ] model extend the findings and provide evidence of bidirectional causality between financial inclusion and economic growth, while the results only support a unidirectional causality running from credit to the private sector, foreign direct investment, inflation rate, rule of law, school enrollment ratio, and trade openness with no feedback response. Moreover, the findings also failed to provide causality evidence for the age dependency ratio-economic growth and population growth-economic growth.

7.1 Policy recommendations

The findings extracted from a wide range of sophisticated methods and large panel spectra; suggest three important policy recommendations, among all others. First, it clearly indicates that financial inclusion is an assistive growth conduit in all economies regardless of any classification, and, thus, it is important to enhance the scope of its coverage via more extensive and swift channels, such as the advancement of financial services through financial technologies. This approach will lead to a higher and quicker integration of the excluded segment of society into formal financial systems and will maximize the effects of financial inclusion on economic growth. Second, it is imperative to gear policies to avert the existing digital gaps stemming from access inequality to digital technology. Informed investments in enhancing digital financial services including mobile banking and digital agent networking will substantially reduce the cost of transactions and encourage more entrants into the financial sector of an economy. Third, both public and private sector organizations need to provide an appropriate platform for hasty adaptation of financial technologies to pave the way for easy use of financial services by customers, enhance financial literacy to support effective use, and extend the scope of financial inclusion coverage. These policy measures will lead to extensive money circulation in the economy and growth channelization via higher financial system integration and investments.

7.2 Limitations of the study

Although the results are robust and cannot be doubted, the study suffers from one major limitation—that is, the use of the rule of law as a proxy for institutional quality, which may not be sufficient to capture the effects of institutional quality in its entirety. Future studies may overcome this shortcoming by including all institutional quality predictors, such as control of corruption, voice and accountability, government effectiveness, political stability, and regulatory quality when assessing the effects of financial inclusion on growth.

Supporting information

S1 appendix. table a1 of appendix a provides statistical detail about cfii aggregate index..

https://doi.org/10.1371/journal.pone.0277730.s001

S2 Appendix. Table B1 of Appendix B provides the descriptive statistics of the panel predictors.

https://doi.org/10.1371/journal.pone.0277730.s002

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• 47. L. Rojas-Suarez and M. A. Amado, “Understanding Latin America’s Financial Inclusion Gap,” Center for Global Development Working Paper 367 . Washington, DC, 2014. https://www.cgdev.org/sites/default/files/latin-american-financial-inclusion-gap.pdf (accessed Jun. 12, 2022).
• 61. World Bank, “World Bank list of economies,” List of economies , 2020. https://www.ilae.org/files/dmfile/World-Bank-list-of-economies-2020_09-1.pdf .
• 66. C.-Y. Park and R. J. Mercado, “Financial Inclusion, Poverty, and Income Inequality in Developing Asia,” 2015. [Online]. https://www.adb.org/sites/default/files/publication/153143/ewp-426.pdf .
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• 106. Asmalidar and W. A. Pratomo, “Causality between Financial Inclusion and Economic Development: Lesson from the Emerging Indonesia Economy,” in In Proceedings of the 2nd Economics and Business International Conference (EBIC 2019)—Economics and Business in Industrial Revolution 4 . 0 , 2021 , pp. 573–578, 10.5220/0009326805730578.

Topics for CGAP's Work

Maximizing the potential of financial inclusion.

The world has recently faced many unprecedented shocks and stresses that have exacerbated existing development challenges—all of which have disproportionate impacts on the most vulnerable, especially women and girls. Against the backdrop of such a challenging global context, financial inclusion is an essential foundation for building a more inclusive, resilient, and green world. The advancement of digital economies and digital inclusion, as well as the increase of socially minded investments, provide hope, while innovations in digital financial services are helping redefine what inclusive financial ecosystems look like, and how they can be used as an enabler of many UN Sustainable Development Goals (SDGs) and broader development outcomes. CGAP works on many aspects of financial inclusion and on its intersection with many development challenges. Below you’ll find more information about the topics we have been working on.

Women's Financial Inclusion

The Role of Financial Services in Rural Women’s Climate Resilience

Micro and Small Enterprises

MSE Financing

Microfinance Digitization

Building resilience.

Climate Change

Climate Resilience

Asset Finance for Global Development

Digital innovation.

Cash-In / Cash-Out for Rural Agent Networks

Fintech and the Future of Banking

Gig Platforms and Financial Inclusion

OPEN APIs FOR DIGITAL FINANCE

Digitizing Merchant Payments

Beyond Switches, What Makes Interoperability Work?

Data-driven Financial Services

Enabling and responsible financial policy.

Regulation for Inclusive Digital Finance

An Ecosystem Approach to Consumer Protection: What, Why and How?

Proportional Supervision for Digital Financial Services

Building an enabling regulatory framework is fundamental for fostering inclusive digital financial services (DFS), but it is not enough. Supervision...

Market monitoring for financial consumer protection

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Financial Inclusion Research around the World: A Review

• Citation: Ozili, Peterson K. “Financial Inclusion Research around the World: A Review.” Forum for Social Economics 38, no. 4 (2020).
• Business and Trade
• financial inclusion
• poverty reduction
• economic cycle
• systemic risk

This paper provides a comprehensive review of the recent evidence on financial inclusion from all regions of the World. It identifies the emerging themes in the financial inclusion literature as well as some controversy in policy circles regarding financial inclusion. In particular, I draw attention to some issues such as optimal financial inclusion, extreme financial inclusion, how financial inclusion can transmit systemic risk to the formal financial sector, and whether financial inclusion and exclusion are pro-cyclical with changes in the economic cycle. The key findings in this review indicate that financial inclusion affects, and is influenced by, the level of financial innovation, poverty levels, the stability of the financial sector, the state of the economy, financial literacy, and regulatory frameworks which differ across countries. Finally, the issues discussed in this paper opens up several avenues for future research.

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Zhang, Dongna, Xihui Haviour Chen, Chi Keung Lau, and Bing Xu. 2023. “Implications of Cryptocurrency Energy Usage on Climate Change.” Technological Forecasting and Social Change 187: 122219.

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Bhutta, Neil and Hizmo, Aurel and Ringo, Daniel. 2022. “How Much Does Racial Bias Affect Mortgage Lending? Evidence from Human and Algorithmic Credit Decisions.” FEDS Working Paper No. 2022-67, SSRN

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June 6, 2024

Mexico | From 2004 to 2021, coverage of ATMs increased from 28 to 62 per 100,000 adults

Financial inclusion has four pillars, one of them has to do with “access”, generally it is seen as the supply of financial products; therefore, this note presents information on the coverage of traditional mechanisms that the population has to access multiple banking.

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May 3, 2024

Colombia | Informality and low years of education weigh heavily on poverty in Colombia

Poverty was reduced in Colombia last year. In 2023, 338 thousand people were lifted out of multidimensional poverty, bringing poverty from 12.9% of the population in 2022 to 12.1% in 2023. And it was reduced mainly in the countryside. Informality and low years of education weigh heavily on poverty in Colombia.

• Latin America

April 1, 2024

Mexico | Advances and challenges around the use of cash

This press article contains some indicators from the point of view of consumers, and public and private companies related to the reduction in the use of cash in Mexico after the pandemic and mentions some of its challenges.

• Digital Trends

March 19, 2024

Mexico | Considerations to invest in financial products

This press article provides advice on some general considerations that must be taken into account when investing in financial assets.

March 15, 2024

Colombia | Women: greater balance in the allocation of…

Care work has a significant impact on women's approach to work. Promoting between family members a balance in the time spent on care and unpaid work would make it possible to increase women's labor participation, their income and their individ…

March 6, 2024

Peru | Gender Gap 2023

The latest gender gap figures for Peru show some deteriorating indicators for women in the country. The greater burden of household chores and the abandonment of the labor market after their first child, condition their situation in the labor market and their use of the financial system.

January 19, 2024

Colombia | This is the year to redefine our electronic payments model

Transferring money or making a payment should be as easy as moving money from one pocket to another, without the hassles and risks of cash. The Colombian authorities and in particular the central bank have been working on a new payment system that promises to be easy, immediate, cheap and 24/7.

• Digital Economy

January 17, 2024

Mexico | Mobile banking: the future or the present?

Mobile banking represents a turning point in traditional banking and a new paradigm for the financial system. The study seeks to show the most current statistics regarding the main trends in access, having and use of this technology and to offe…

January 12, 2024

Mexico | In 2023-2Q, 99% of adults in municipalities w…

In December 2023, the CNBV presented the latest update of its quarterly database on Financial Inclusion for 2023-2Q (financial services of banking and Popular Savings and Credit Entities). This note describes some results and compares them with…

January 5, 2024

Colombia | Large improvements in financial inclusion b…

In 2022, 34.7 million adults had at least one formal financial product in Colombia. This is more than fourteen million more than in 2012. With this, in the last decade, the percentage of adults with some financial product increased from 67.2% t…

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December 4, 2023

Mexico – US | Moving Up the Economic Ladder Book

Moving Up the Economic Ladder: 20 Years of Financial Inclusion of the Mexican Migrant Community in the U.S. A joint publication between the University of California San Diego, Sin Fronteras IAP, the Financial Education department at BBVA México and BBVA Research.

October 6, 2023

Mexico | Financial prevention and population who needs caregivers

In this press article, we emphasize the need for early financial inclusion based on the results of the National Survey for the Care System, which contains information on the demand for care of the population with a disability or dependency; minors under 17 years of age; and population over 60 years of age.

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Research Topics & Ideas: Finance

120+ Finance Research Topic Ideas To Fast-Track Your Project

If you’re just starting out exploring potential research topics for your finance-related dissertation, thesis or research project, you’ve come to the right place. In this post, we’ll help kickstart your research topic ideation process by providing a hearty list of finance-centric research topics and ideas.

PS – This is just the start…

We know it’s exciting to run through a list of research topics, but please keep in mind that this list is just a starting point . To develop a suitable education-related research topic, you’ll need to identify a clear and convincing research gap , and a viable plan of action to fill that gap.

If this sounds foreign to you, check out our free research topic webinar that explores how to find and refine a high-quality research topic, from scratch. Alternatively, if you’d like hands-on help, consider our 1-on-1 coaching service .

Overview: Finance Research Topics

• Corporate finance topics
• Investment banking topics
• Private equity & VC
• Asset management
• Hedge funds
• Financial planning & advisory
• Quantitative finance
• Treasury management
• Financial technology (FinTech)
• Commercial banking
• International finance

Corporate Finance

These research topic ideas explore a breadth of issues ranging from the examination of capital structure to the exploration of financial strategies in mergers and acquisitions.

• Evaluating the impact of capital structure on firm performance across different industries
• Assessing the effectiveness of financial management practices in emerging markets
• A comparative analysis of the cost of capital and financial structure in multinational corporations across different regulatory environments
• Examining how integrating sustainability and CSR initiatives affect a corporation’s financial performance and brand reputation
• Analysing how rigorous financial analysis informs strategic decisions and contributes to corporate growth
• Examining the relationship between corporate governance structures and financial performance
• A comparative analysis of financing strategies among mergers and acquisitions
• Evaluating the importance of financial transparency and its impact on investor relations and trust
• Investigating the role of financial flexibility in strategic investment decisions during economic downturns
• Investigating how different dividend policies affect shareholder value and the firm’s financial performance

Investment Banking

The list below presents a series of research topics exploring the multifaceted dimensions of investment banking, with a particular focus on its evolution following the 2008 financial crisis.

• Analysing the evolution and impact of regulatory frameworks in investment banking post-2008 financial crisis
• Investigating the challenges and opportunities associated with cross-border M&As facilitated by investment banks.
• Evaluating the role of investment banks in facilitating mergers and acquisitions in emerging markets
• Analysing the transformation brought about by digital technologies in the delivery of investment banking services and its effects on efficiency and client satisfaction.
• Evaluating the role of investment banks in promoting sustainable finance and the integration of Environmental, Social, and Governance (ESG) criteria in investment decisions.
• Assessing the impact of technology on the efficiency and effectiveness of investment banking services
• Examining the effectiveness of investment banks in pricing and marketing IPOs, and the subsequent performance of these IPOs in the stock market.
• A comparative analysis of different risk management strategies employed by investment banks
• Examining the relationship between investment banking fees and corporate performance
• A comparative analysis of competitive strategies employed by leading investment banks and their impact on market share and profitability

Private Equity & Venture Capital (VC)

These research topic ideas are centred on venture capital and private equity investments, with a focus on their impact on technological startups, emerging technologies, and broader economic ecosystems.

• Investigating the determinants of successful venture capital investments in tech startups
• Analysing the trends and outcomes of venture capital funding in emerging technologies such as artificial intelligence, blockchain, or clean energy
• Assessing the performance and return on investment of different exit strategies employed by venture capital firms
• Assessing the impact of private equity investments on the financial performance of SMEs
• Analysing the role of venture capital in fostering innovation and entrepreneurship
• Evaluating the exit strategies of private equity firms: A comparative analysis
• Exploring the ethical considerations in private equity and venture capital financing
• Investigating how private equity ownership influences operational efficiency and overall business performance
• Evaluating the effectiveness of corporate governance structures in companies backed by private equity investments
• Examining how the regulatory environment in different regions affects the operations, investments and performance of private equity and venture capital firms

Asset Management

This list includes a range of research topic ideas focused on asset management, probing into the effectiveness of various strategies, the integration of technology, and the alignment with ethical principles among other key dimensions.

• Analysing the effectiveness of different asset allocation strategies in diverse economic environments
• Analysing the methodologies and effectiveness of performance attribution in asset management firms
• Assessing the impact of environmental, social, and governance (ESG) criteria on fund performance
• Examining the role of robo-advisors in modern asset management
• Evaluating how advancements in technology are reshaping portfolio management strategies within asset management firms
• Evaluating the performance persistence of mutual funds and hedge funds
• Investigating the long-term performance of portfolios managed with ethical or socially responsible investing principles
• Investigating the behavioural biases in individual and institutional investment decisions
• Examining the asset allocation strategies employed by pension funds and their impact on long-term fund performance
• Assessing the operational efficiency of asset management firms and its correlation with fund performance

Hedge Funds

Here we explore research topics related to hedge fund operations and strategies, including their implications on corporate governance, financial market stability, and regulatory compliance among other critical facets.

• Assessing the impact of hedge fund activism on corporate governance and financial performance
• Analysing the effectiveness and implications of market-neutral strategies employed by hedge funds
• Investigating how different fee structures impact the performance and investor attraction to hedge funds
• Evaluating the contribution of hedge funds to financial market liquidity and the implications for market stability
• Analysing the risk-return profile of hedge fund strategies during financial crises
• Evaluating the influence of regulatory changes on hedge fund operations and performance
• Examining the level of transparency and disclosure practices in the hedge fund industry and its impact on investor trust and regulatory compliance
• Assessing the contribution of hedge funds to systemic risk in financial markets, and the effectiveness of regulatory measures in mitigating such risks
• Examining the role of hedge funds in financial market stability
• Investigating the determinants of hedge fund success: A comparative analysis

Financial Planning and Advisory

This list explores various research topic ideas related to financial planning, focusing on the effects of financial literacy, the adoption of digital tools, taxation policies, and the role of financial advisors.

• Evaluating the impact of financial literacy on individual financial planning effectiveness
• Analysing how different taxation policies influence financial planning strategies among individuals and businesses
• Evaluating the effectiveness and user adoption of digital tools in modern financial planning practices
• Investigating the adequacy of long-term financial planning strategies in ensuring retirement security
• Assessing the role of financial education in shaping financial planning behaviour among different demographic groups
• Examining the impact of psychological biases on financial planning and decision-making, and strategies to mitigate these biases
• Assessing the behavioural factors influencing financial planning decisions
• Examining the role of financial advisors in managing retirement savings
• A comparative analysis of traditional versus robo-advisory in financial planning
• Investigating the ethics of financial advisory practices

The following list delves into research topics within the insurance sector, touching on the technological transformations, regulatory shifts, and evolving consumer behaviours among other pivotal aspects.

• Analysing the impact of technology adoption on insurance pricing and risk management
• Analysing the influence of Insurtech innovations on the competitive dynamics and consumer choices in insurance markets
• Investigating the factors affecting consumer behaviour in insurance product selection and the role of digital channels in influencing decisions
• Assessing the effect of regulatory changes on insurance product offerings
• Examining the determinants of insurance penetration in emerging markets
• Evaluating the operational efficiency of claims management processes in insurance companies and its impact on customer satisfaction
• Examining the evolution and effectiveness of risk assessment models used in insurance underwriting and their impact on pricing and coverage
• Evaluating the role of insurance in financial stability and economic development
• Investigating the impact of climate change on insurance models and products
• Exploring the challenges and opportunities in underwriting cyber insurance in the face of evolving cyber threats and regulations

Quantitative Finance

These topic ideas span the development of asset pricing models, evaluation of machine learning algorithms, and the exploration of ethical implications among other pivotal areas.

• Developing and testing new quantitative models for asset pricing
• Analysing the effectiveness and limitations of machine learning algorithms in predicting financial market movements
• Assessing the effectiveness of various risk management techniques in quantitative finance
• Evaluating the advancements in portfolio optimisation techniques and their impact on risk-adjusted returns
• Evaluating the impact of high-frequency trading on market efficiency and stability
• Investigating the influence of algorithmic trading strategies on market efficiency and liquidity
• Examining the risk parity approach in asset allocation and its effectiveness in different market conditions
• Examining the application of machine learning and artificial intelligence in quantitative financial analysis
• Investigating the ethical implications of quantitative financial innovations
• Assessing the profitability and market impact of statistical arbitrage strategies considering different market microstructures

Treasury Management

The following topic ideas explore treasury management, focusing on modernisation through technological advancements, the impact on firm liquidity, and the intertwined relationship with corporate governance among other crucial areas.

• Analysing the impact of treasury management practices on firm liquidity and profitability
• Analysing the role of automation in enhancing operational efficiency and strategic decision-making in treasury management
• Evaluating the effectiveness of various cash management strategies in multinational corporations
• Investigating the potential of blockchain technology in streamlining treasury operations and enhancing transparency
• Examining the role of treasury management in mitigating financial risks
• Evaluating the accuracy and effectiveness of various cash flow forecasting techniques employed in treasury management
• Assessing the impact of technological advancements on treasury management operations
• Examining the effectiveness of different foreign exchange risk management strategies employed by treasury managers in multinational corporations
• Assessing the impact of regulatory compliance requirements on the operational and strategic aspects of treasury management
• Investigating the relationship between treasury management and corporate governance

Financial Technology (FinTech)

The following research topic ideas explore the transformative potential of blockchain, the rise of open banking, and the burgeoning landscape of peer-to-peer lending among other focal areas.

• Evaluating the impact of blockchain technology on financial services
• Investigating the implications of open banking on consumer data privacy and financial services competition
• Assessing the role of FinTech in financial inclusion in emerging markets
• Analysing the role of peer-to-peer lending platforms in promoting financial inclusion and their impact on traditional banking systems
• Examining the cybersecurity challenges faced by FinTech firms and the regulatory measures to ensure data protection and financial stability
• Examining the regulatory challenges and opportunities in the FinTech ecosystem
• Assessing the impact of artificial intelligence on the delivery of financial services, customer experience, and operational efficiency within FinTech firms
• Analysing the adoption and impact of cryptocurrencies on traditional financial systems
• Investigating the determinants of success for FinTech startups

Commercial Banking

These topic ideas span commercial banking, encompassing digital transformation, support for small and medium-sized enterprises (SMEs), and the evolving regulatory and competitive landscape among other key themes.

• Assessing the impact of digital transformation on commercial banking services and competitiveness
• Analysing the impact of digital transformation on customer experience and operational efficiency in commercial banking
• Evaluating the role of commercial banks in supporting small and medium-sized enterprises (SMEs)
• Investigating the effectiveness of credit risk management practices and their impact on bank profitability and financial stability
• Examining the relationship between commercial banking practices and financial stability
• Evaluating the implications of open banking frameworks on the competitive landscape and service innovation in commercial banking
• Assessing how regulatory changes affect lending practices and risk appetite of commercial banks
• Examining how commercial banks are adapting their strategies in response to competition from FinTech firms and changing consumer preferences
• Analysing the impact of regulatory compliance on commercial banking operations
• Investigating the determinants of customer satisfaction and loyalty in commercial banking

International Finance

The folowing research topic ideas are centred around international finance and global economic dynamics, delving into aspects like exchange rate fluctuations, international financial regulations, and the role of international financial institutions among other pivotal areas.

• Analysing the determinants of exchange rate fluctuations and their impact on international trade
• Analysing the influence of global trade agreements on international financial flows and foreign direct investments
• Evaluating the effectiveness of international portfolio diversification strategies in mitigating risks and enhancing returns
• Evaluating the role of international financial institutions in global financial stability
• Investigating the role and implications of offshore financial centres on international financial stability and regulatory harmonisation
• Examining the impact of global financial crises on emerging market economies
• Examining the challenges and regulatory frameworks associated with cross-border banking operations
• Assessing the effectiveness of international financial regulations
• Investigating the challenges and opportunities of cross-border mergers and acquisitions

Choosing A Research Topic

These finance-related research topic ideas are starting points to guide your thinking. They are intentionally very broad and open-ended. By engaging with the currently literature in your field of interest, you’ll be able to narrow down your focus to a specific research gap .

When choosing a topic , you’ll need to take into account its originality, relevance, feasibility, and the resources you have at your disposal. Make sure to align your interest and expertise in the subject with your university program’s specific requirements. Always consult your academic advisor to ensure that your chosen topic not only meets the academic criteria but also provides a valuable contribution to the field. 

If you need a helping hand, feel free to check out our private coaching service here.

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• Black Americans’ Views on Success in the U.S.

How Black adults define personal and financial success, and the pressures they feel to achieve their goals

Table of contents.

• Assessing personal success
• Defining personal success
• Pressure to be successful
• Strategies for becoming successful
• Defining financial success
• Financial challenges Black Americans experience
• Personal financial situation
• Economic worries
• Financial preparedness
• Acknowledgments
• The American Trends Panel survey methodology

Pew Research Center conducted this study to explore Black Americans’ views on personal and financial success in the United States and their current assessments of their financial situation.

We surveyed 4,736 U.S. adults who identify as Black and non-Hispanic, multiracial Black and non-Hispanic, or Black and Hispanic. The survey was conducted from Sept. 12 to Sept. 24, 2023, and includes 1,755 Black adults on the Center’s American Trends Panel (ATP) and 2,981 Black adults on Ipsos’ KnowledgePanel.

Respondents on both panels are recruited through national, random sampling of residential addresses. Recruiting panelists by mail ensures that nearly all U.S. Black adults have a chance of selection. This gives us confidence that any sample can represent the whole population (see our Methods 101 explainer on random sampling). For more information on this survey, refer to its methodology and questionnaire .

The terms Black Americans and Black adults are used interchangeably throughout this report to refer to U.S. adults who self-identify as Black, either alone or in combination with other races or Hispanic identity.

Throughout this report, Black, non-Hispanic respondents are those who identify as single-race Black and say they have no Hispanic background. Black Hispanic respondents are those who identify as Black and say they have Hispanic background. Multiracial respondents are those who indicate two or more racial backgrounds (one of which is Black) and say they are not Hispanic.

In this report, immigrant refers to people who were not U.S. citizens at birth – in other words, those born outside the U.S., Puerto Rico or other U.S. territories to parents who were not U.S. citizens.

To create the upper-, middle- and lower-income tiers, respondents’ 2021 family incomes were adjusted for differences in purchasing power by geographic region and household size. Respondents were then placed into income tiers: Middle income is defined as two-thirds to double the median annual income for the entire survey sample. Lower income falls below that range, and upper income lies above it.

Throughout this report, Black adults with upper incomes are those who have family incomes in the upper-income tier. Black adults with middle incomes and Black adults with lower incomes have family incomes in the middle- and lower-income tier, respectively. For more information about how the income tiers were created, read the methodology .

Most Black Americans consider themselves at least somewhat successful (66%). When asked to define what success means to them personally, 82% of Black adults point to the ability to provide for their family.

However, success isn’t exclusively related to financial achievements, a new Pew Research Center survey finds. Majorities of Black adults also cite quality-of-life measures such as personal happiness (80%), having enough time to do the things they want to do (65%) and having a job or career they enjoy (56%). A related analysis finds that most Black adults say they are at least somewhat happy  and have enough time to do the things they want to do at least sometimes.

Roughly half of Black adults also say owning their own home (52%) and using their talents and resources to help others (50%) are essential to their personal definition of success.

Yet many of the measures Black adults use to define success are also major sources of pressure in their lives.

Among the pressures Black adults experience, the top two cited relate to personal finances: 71% say they face a great deal or fair amount of pressure to have enough money to do the things they want to do, and 68% say the same about being able to provide for their family.

Financial pressures are widespread among Black adults even when accounting for differences in family income. 1

• 73% of Black adults with lower family incomes, 70% of those with middle incomes and 69% with upper incomes say they face a great deal or fair amount of pressure to have enough money to do the things they want to do.
• 70% of Black adults with lower incomes, 68% with middle incomes and 64% with upper incomes say the same about pressures to provide for their family.
• 53% of Black adults with lower incomes, 48% with middle incomes and 50% with upper incomes say they feel that pressure to own their own home.

Although many Black adults experience similar levels of financial pressure, particular subgroups experience more financial insecurity than others. For example, Black adults with lower family incomes are more likely than those with middle or upper incomes to rate their personal financial situation negatively (78% vs. 57% and 29%, respectively).

Similarly, Black adults with lower incomes are more likely than those with middle or upper incomes to experience economic worries on a daily or near daily basis (64% vs. 49% and 31%). They are also more likely to say that if they lost their main source of income, they could not cover three months’ worth of expenses using several financial means we asked about (41% vs. 18% and 7%).

Black Americans’ assessment of their financial situation today

While national economic conditions improved some in 2023 , inflation slowed and unemployment rates hovered near record lows , Black Americans are downbeat about their financial situation. Overall, 64% of Black adults rate their personal financial situation negatively, or in only fair or poor shape.

The new survey also finds many Black adults are not financially prepared for the sudden loss of their main source of income. We asked if they could use four different resources to cover expenses for three months if they lost their income: personal savings, credit cards, loans from family or friends, or the value of their assets.

• 45% say they could cover their expenses for three months with personal savings.
• 37% say they could borrow from family or friends.
• 28% say they would not be able to use any of the four resources we asked about to cover three months’ expenses.

Additionally, a majority of Black adults experience at least one of eight financial worries on a daily or near daily basis.

• Roughly three-in-ten worry about paying their bills (31%), the amount of debt they have (29%), and being able to save enough for their retirement (28%) on a daily or near daily basis.
• 24% worry about being able to buy enough food for themselves and their family every day or almost every day.
• 54% worry about at least one economic concern either every day or almost every day, such as paying bills, the amount of debt they hold, saving for retirement, and being able to buy enough food for their families.

In 2022, Black households had the lowest median income out of all racial and ethnic groups in the United States, at $52,860, according to the Census Bureau . And while Black household wealth rose during the pandemic , it remains significantly lower than other racial or ethnic groups’. Notably, 24% of all single-race, non-Hispanic Black households had no or negative wealth in December 2021, despite gains during the pandemic.

Earlier Pew Research Center findings show that Black Americans typically experience higher levels of economic insecurity than other Americans, are increasingly dissatisfied with capitalism , and believe the economic system in the U.S. does not treat Black people fairly. Nonetheless, Black adults are optimistic about their financial futures .

How Black Americans define financial success

No matter their financial situation, Black Americans define financial success in many ways. Among Black adults:

• Roughly two-thirds say being debt-free (67%) and having enough money to do the things they want to do (65%) are essential to their definition of financial success.
• About half (49%) say the same about owning a home.
• Fewer than half say being able to pass down financial assets to future generations (44%), having multiple streams of income (43%), being able to retire early (35%), or owning a business (22%) are essential to their definition of financial success.

For this report, we surveyed 4,736 Black adults in the U.S. from Sept. 12 to 24, 2023, in English and Spanish, to find out how they view personal and financial success in America, and to learn about the economic challenges they experience.

The following chapters take a closer look at:

How Black Americans view personal success

How Black Americans view financial success and the financial challenges they experience

• Throughout this report, Black adults with upper incomes are those who have family incomes in the upper-income tier. Black adults with middle incomes and Black adults with lower incomes have family incomes in the middle- and lower-income tier, respectively. For more information about how the income tiers were created, read the methodology. ↩

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Diversity wins: How inclusion matters

Diversity wins is the third report in a McKinsey series investigating the business case for diversity, following Why diversity matters (2015) and Delivering through diversity (2018). Our latest report shows not only that the business case remains robust but also that the relationship between diversity on executive teams and the likelihood of financial outperformance has strengthened over time. These findings emerge from our largest data set so far, encompassing 15 countries and more than 1,000 large companies. By incorporating a “social listening” analysis of employee sentiment in online reviews, the report also provides new insights into how inclusion matters. It shows that companies should pay much greater attention to inclusion, even when they are relatively diverse.

In the COVID-19 crisis, inclusion and diversity matter more than ever

For business executives the world over, the COVID-19 pandemic  is proving to be one of the greatest leadership tests of their careers. Not only must they protect the health of their employees and customers, they must also navigate far-reaching disruption to their operations, plan for recovery, and prepare to reimagine their business models for the next normal.

In this challenging context, the task of fostering inclusion and diversity (I&D) could easily take a back seat—and the painstaking progress made by many firms in recent years could be reversed. As this report shows, however, I&D is a powerful enabler of business performance. Companies whose leaders welcome diverse talents and include multiple perspectives are likely to emerge from the crisis stronger. As the CEO of a European consumer-goods company told us: “I know we have to deal with COVID-19, but inclusion and diversity is a topic too important to put onto the back burner.”

On the other hand, some companies appear to be viewing I&D as a “luxury we cannot afford” during the crisis. We believe such companies risk tarnishing their license to operate in the long term and will lose out on opportunities to innovate their business models and strengthen their recovery.

If companies deprioritize I&D during the crisis, the impact will be felt not just on the bottom line but in people’s lives. Research and experience warn that diverse talent can be at risk during a downturn for several reasons—for example, downsizing can have a disproportionate impact on the roles typically held by diverse talent. As companies send staff home to work, this could reinforce existing exclusive behaviors and unconscious biases and undermine inclusion. In addition, inequality with regard to sharing childcare and homeschooling responsibilities, as well as the quality of home workspace (including broadband access), could put women and minorities at a disadvantage during this time of working remotely.

Companies need to seize this moment—both to protect the gains they have already made and to leverage I&D to position themselves to prosper in the future.

There is ample evidence that diverse and inclusive companies are more likely to make better, bolder decisions—a critical capability in the crisis. For example, diverse teams have been shown to be better able to radically innovate and anticipate shifts in consumer needs and consumption patterns. Moreover, the shift to technology-enabled remote working presents an opportunity for companies to accelerate building inclusive and agile cultures—further challenging existing management routines. Not least, a visible commitment to I&D during the crisis is likely to strengthen companies’ global image and license to operate.

By following the trajectories of hundreds of companies in our data set since 2014, we find that the overall slow growth in diversity often observed in fact masks a growing polarization among these organizations. While most have made little progress, are stalled or even slipping backward, some are making impressive gains in diversity, particularly in executive teams. We show that these diversity winners are adopting systematic, business-led approaches to inclusion and diversity (I&D) . And, with a special focus on inclusion, we highlight the areas where companies should take far bolder action to create a long-lasting inclusive culture and to promote inclusive behavior.

(Our research predates the outbreak of the global pandemic, but we believe these findings remain highly relevant. See the sidebar, “In the COVID-19 crisis, inclusion and diversity matter more than ever,” for more on why I&D must remain a priority even as the context shifts, or read “ Diversity still matters ” for an even deeper dive. You can also explore a related interactive  for another lens on the issues.)

A stronger business case for diversity, but slow progress overall

Our latest analysis reaffirms the strong business case for both gender diversity and ethnic and cultural diversity in corporate leadership—and shows that this business case continues to strengthen. The most diverse companies are now more likely than ever to outperform less diverse peers on profitability.

Our 2019 analysis finds that companies in the top quartile for gender diversity on executive teams were 25 percent more likely to have above-average profitability than companies in the fourth quartile—up from 21 percent in 2017 and 15 percent in 2014 (Exhibit 1).

Moreover, we found that the greater the representation, the higher the likelihood of outperformance. Companies with more than 30 percent women executives were more likely to outperform companies where this percentage ranged from 10 to 30, and in turn these companies were more likely to outperform those with even fewer women executives, or none at all. A substantial differential likelihood of outperformance—48 percent—separates the most from the least gender-diverse companies.

In the case of ethnic and cultural diversity, our business-case findings are equally compelling: in 2019, top-quartile companies outperformed those in the fourth one by 36 percent in profitability, slightly up from 33 percent in 2017 and 35 percent in 2014. As we have previously found, the likelihood of outperformance continues to be higher for diversity in ethnicity than for gender.

A McKinsey Live event on 'Creating an inclusive environment for transgender employees'

A McKinsey Live event on 'Women in the Workplace 2021: The state of women hangs in the balance'

Yet progress, overall, has been slow. In the companies in our original 2014 data set, based in the United States and the United Kingdom, female representation on executive teams rose from 15 percent in 2014 to 20 percent in 2019. Across our global data set, for which our data starts in 2017, gender diversity moved up just one percentage point—to 15 percent, from 14—in 2019. More than a third of the companies in our data set still have no women at all on their executive teams. This lack of material progress is evident across all industries and in most countries. Similarly, the representation of ethnic-minorities on UK and US executive teams stood at only 13 percent in 2019, up from just 7 percent in 2014. For our global data set, this proportion was 14 percent in 2019, up from 12 percent in 2017 (Exhibit 2).

The widening gap between winners and laggards

While overall progress on gender and cultural representation has been slow, this is not consistent across all organizations. Our research clearly shows that there is a widening gap between I&D leaders and companies that have yet to embrace diversity. A third of the companies we analyzed have achieved real gains in top-team diversity over the five-year period. But most have made little or no progress, and some have even gone backward.

This growing polarization between high and low performers is reflected in an increased likelihood of a performance penalty. In 2019, fourth-quartile companies for gender diversity on executive teams were 19 percent more likely than companies in the other three quartiles to underperform on profitability—up from 15 percent in 2017 and 9 percent in 2015. At companies in the fourth quartile for both gender and ethnic diversity, the penalty was even steeper in 2019: they were 27 percent more likely to underperform on profitability than all other companies in our data set.

Learn more about delivering through diversity

We sought to understand how companies in our original 2014 data set have been progressing, and in doing so we identified five cohorts. These were based on their starting points and speed of progress on executive team gender representation and, separately, ethnic-minority representation (Exhibit 3). In the first two cohorts, Diversity Leaders and Fast Movers, diverse representation improved strongly over the past five years: for example, gender Fast Movers have almost quadrupled the representation of women on executive teams, to 27 percent, in 2019; for ethnicity, companies in the equivalent cohort have increased their level of diversity from just 1 percent in 2014 to 18 percent in 2019.

At the other end of the spectrum, the already poor diversity performance of the Laggards has declined further. In 2019, an average of 8 percent of executive team members at these companies were female—and they had no ethnic-minority representation at all. The two other cohorts are Moderate Movers, which have on average experienced a slower improvement in diversity, and Resting on Laurels, which started with higher levels of diversity than Laggards did, but have similarly become less diverse since 2014.

We also found that the average likelihood of financial outperformance in these cohorts is consistent with our findings in the quartile analysis above. For example, in 2019, companies in the Resting on Laurels cohort on average had the highest likelihood of outperformance on profitability, at almost 62 percent—likely reflecting their historically high levels of diversity on executive teams. Laggards, on the other hand, are more likely to underperform their national industry median in profitability, at 40 percent.

How inclusion matters

By analyzing surveys and company research, we explored how different approaches to I&D could have shaped the trajectories of the companies in our data set. Our work suggested two critical factors: a systematic business-led approach to I&D, and bold action on inclusion. On the former we have previously advocated for an I&D approach based on a robust business case tailored to the needs of individual companies, evidenced-based targets, and core-business leadership accountability.

To further understand how inclusion matters—and which aspects of it employees regard as significant—we conducted our first analysis of inclusion-related indicators. We conducted this outside-in using “social listening,” focusing on sentiment in employee reviews of their employers posted on US-based online platforms.

While this approach is indicative, rather than conclusive, it could provide a more candid read on inclusion than internal employee-satisfaction surveys do—and makes it possible to analyze data across dozens of companies rapidly and simultaneously. We focused on three industries with the highest levels of executive-team diversity in our data set: financial services , technology , and healthcare . In these sectors, comments directly pertaining to I&D accounted for around one-third of total comments made, suggesting that this topic is high on employees’ minds.

We analyzed comments relating to five indicators. The first two—diverse representation and leadership accountability for I&D—are evidence of a systematic approach to I&D. The other three—equality, openness, and belonging—are core components of inclusion. For several of these indicators, our findings suggest “pain points” in the experience of employees:

• While overall sentiment on diversity was 52 percent positive and 31 percent negative, sentiment on inclusion was markedly worse, at only 29 percent positive and 61 percent negative. This encapsulates the challenge that even the more diverse companies still face in tackling inclusion (Exhibit 4). Hiring diverse talent isn’t enough—it’s the workplace experience that shapes whether people remain and thrive.
• Opinions about leadership and accountability in I&D accounted for the highest number of mentions and were strongly negative. On average, across industries, 51 percent of the total mentions related to leadership, and 56 percent of those were negative. This finding underscores the increasingly recognized need for companies to improve their I&D engagement with core-business managers.
• For the three indicators of inclusion—equality, openness, and belonging—we found particularly high levels of negative sentiment about equality and fairness of opportunity. Negative sentiment about equality ranged from 63 to 80 percent across the industries analyzed. The work environment’s openness, which encompasses bias and discrimination, was also a significant concern—negative sentiment across industries ranged from 38 to 56 percent. Belonging elicited overall positive sentiment, but from a relatively small number of mentions.

These findings highlight the importance not just of inclusion overall but also of specific aspects of inclusion. Even relatively diverse companies face significant challenges in creating work environments characterized by inclusive leadership and accountability among managers, equality and fairness of opportunity, and openness and freedom from bias and discrimination.

Winning through inclusion and diversity: Taking bold action

We took a close look at our data set’s more diverse companies, which as we have seen are more likely to outperform financially. The common thread for these diversity leaders is a systematic approach and bold steps to strengthen inclusion. Drawing on best practices from these companies, this report highlights five areas of action (Exhibit 5):

• Ensure the representation of diverse talent. This is still an essential driver of inclusion. Companies should focus on advancing diverse talent into executive, management, technical, and board roles. They should ensure that a robust I&D business case designed for individual companies is well accepted and think seriously about which forms of multivariate diversity to prioritize (for example, going beyond gender and ethnicity). They also need to set the right data-driven targets for the representation of diverse talent.
• Strengthen leadership accountability and capabilities for I&D. Companies should place their core-business leaders and managers at the heart of the I&D effort—beyond the HR function or employee resource-group leaders. In addition, they should not only strengthen the inclusive-leadership capabilities of their managers and executives but also more emphatically hold all leaders to account for progress on I&D.
• Enable equality of opportunity through fairness and transparency. To advance toward a true meritocracy, it is critical that companies ensure a level playing field in advancement and opportunity. They should deploy analytics tools to show that promotions, pay processes, and the criteria behind them, are transparent and fair; debias these processes ; and strive to meet diversity targets in their long-term workforce plans.
• Promote openness and tackle microaggressions. Companies should uphold a zero-tolerance policy for discriminatory behavior, such as bullying and harassment, and actively help managers and staff to identify and address microaggressions. They should also establish norms for open, welcoming behavior and ask leaders and employees to assess each other on how they are living up to that standard.
• Foster belonging through unequivocal support for multivariate diversity. Companies should build a culture where all employees feel they can bring their whole selves to work. Managers should communicate and visibly embrace their commitment to multivariate forms of diversity, building a connection to a wide range of people and supporting employee resource groups to foster a sense of community and belonging. Companies should explicitly assess belonging in internal surveys.

For deeper insights, download Diversity wins: How inclusion matters , the full report on which this article is based (PDF–10.6MB).

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Research: Why Companies Should Disclose Their Lack of Progress on DEI

• Evan Apfelbaum

Stakeholders value transparency and accountability — even when you’re falling short.

Many companies have set goals to increase employee diversity, and many companies have fallen short of meeting their goals. Most leaders would likely prefer to keep this lack of progress quiet, but research shows that there may be benefits to being transparent about it. Specifically, this type of disclosure can signal that you take diversity seriously and are genuinely committed to the goals you’ve set for your organization. That said, taking too long to make progress can dampen any goodwill you might receive from disclosure.

In the aftermath of George Floyd’s murder and the national reckoning around racial injustice in 2020, many companies redoubled their commitment to increase the diversity of their workforce. New practices and policies were introduced to help reach diversity goals set by leadership, and for quite a few, this commitment was broadcast widely: centered in a CEO speech, a press release, a company town hall, on social media, or in internal messages to employees.

• Evan Apfelbaum is a social psychologist and associate professor at BU’s Questrom School of Business. His research leverages behavioral science to reveal the challenges and potential of diversity and social change.
• Eileen Suh is a postdoctoral scholar at the Kellogg School of Management, Northwestern University. Her research focuses on understanding why organizations struggle to achieve diversity and inclusion goals and identifying effective strategies to improve these efforts.

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