The Influence of Financial Inclusion on Gross National Income in East African Countries: A Dynamic Multivariate Bayesian Structural Model Approach

Abstract

East Africa's slow economic growth is due to complex issues driven by a combination of factors, including a high debt burden, political instability, conflict and violence, climate change impacts, inadequate infrastructure, and an underdeveloped financial services sector.   For these countries, financial inclusion research is crucial because it highlights how increasing access to affordable, responsible financial services empowers individuals and businesses, reduces poverty and inequality, and enables progress towards sustainable development goals. In particular, formal financial inclusion is currently a policy priority worldwide due to its effects on the rapid mobilization of financial resources, the efficient allocation of productive inputs, and the reduction of the dependence of small businesses and households on expensive credits from informal economic sectors. The study uses the dynamic multivariate panel data models to analyze the impact of a multidimensional financial inclusion index on per capita gross national income among East African Countries. The study's results demonstrate that indicators of human development are key drivers of financial inclusion growth as they enable greater access to and usage of financial services. Countries such as the DRC and Burundi should focus on providing basic financial services. Tanzania, Rwanda, and Kenya must focus on the overall improvement of financial inclusion. Due to the long-term effects of financial inclusion on gross national income, East African countries are likely to benefit more from policies that support sustained investment in more inclusive and comprehensive financial systems.

Keywords: East Africa, financial inclusion, economic growth, dynamic multivariate panel data models

JEL Classifications: G21, O1, O4, O11, O160

DOI: 10.7176/JESD/16-6-03

Publication date:August 31^st 2025