The Impact of Financial Stability on Financial Inclusion: Evidence from Pakistan

Abstract

This study explores the major determinants of financial inclusion in Pakistan based on the annual data from 2005 to 2024, which is obtained by using the World Bank Global Financial Development Indicator (GFDI), the World Development Indicator (WDI), and the State Bank of Pakistan. The unbalanced panel data set was created to enable determining not only the long-term trends but also the effect of such world shocks as the 2007 2009 financial crisis and the COVID-19 pandemic (2020 2022). Using a regression analysis, the paper examines the relationship between financial stability (FS), economic development (ED), corruption perception index (CPI), and financial literacy (FL) and financial inclusion. The findings reveal that financial literacy has the greatest and most positive influence on financial inclusion, followed by economic development, which does not indicate a significant effect. A low to medium impact is seen in areas of financial stability and inflation. The evidence suggests that financial inclusion in Pakistan is influenced by demand-side factors, which necessitate more targeted efforts to enhance financial literacy beyond macroeconomic growth alone. Such realisations indicate that policy measures that encourage monetary education, better accessibility of financial resources, and inclusive economic systems are needed.

Keywords : Financial Inclusion; Pakistan; Financial Stability; Economic Development; Consumer Price Index; Financial Literacy