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To test the relationship between financial inclusion
and stability, Sahay et
al. (2015) used panel regression with country fixed effects for the
timeframe from 2004 to 2011. Dependent variables were bank Z-score, taken from
the Global Financial Development database. Financial inclusion variables from
IMF’s Financial Access Survey1.
Thevariables were lagged by one year in the regression. The explanatory
variables were also interacted with the variable BCP, which approximates the
quality of bank supervision by measuring the degree of compliance with Basel
Core Principles (BCP). Two measures of BCP were tested: a composite of all the
principles, and a subset of BCP principles relevant to financial inclusion
(Core Principles 1, 3, 4, 5, 8, 9, 10, 11, 14, 15, 16, 17, 18, 24, 25, and 29).
Control variables were the lagged values of the Financial Institutions Depth
index (FID) from Sahay and others (2015a), real GDP per capita, excess of
credit growth above nominal GDP; contemporaneous variables of population,
FDI-to-GDP ratio, trade-to-GDP ratio, inflation, government balance, a dummy
for banking crisis, and the Lerner index. The coefficient on the variable
“number of borrowers per 1,000 adults” was found to be negative and significant
for both X and X2. The coefficient of the interaction with both
measures of BCP was positive. For other variables of financial inclusion, the
relationships were found to be insignificant or inconclusive.

1 ATMs per 100,000 adults, ATMs per 1,000km2, commercial
bank branches per 100,000 adults, commercial bank branches per 1,000km2,
registered mobile money accounts per 1,000 adults, deposit accounts with
commercial banks per 1,000 adults, depositors with commercial banks per 1,000
adults, household depistors with commercial banks per 1,000 adults, household
deposit accounts with commercial bank per 1,000 adults, loan accounts with commercial
banks per 1,000 adults, household loan accounts with commercial banks per 1,000
adults, borrowers from commercial banks per 1,000 adults

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