Financial Inclusion and Human Development in OIC Member Countries: Evidence from Panel Quantile Regression Method

Abstract

The Organization of Islamic Cooperation (OIC) member countries has the lowest human development index (0.63) compared with the world average (0.73) and developing countries’ average (0.68). However, the level of human development varies among the member countries, with the majority of the members categorized under low and medium levels of human development. To explore more information about the effect of financial inclusion on human development across different level of human development of OIC countries, this study used panel quantile regression to examine the effect of financial inclusion on low, medium, high and very high human development levels of OIC countries. The results revealed that financial inclusion promote higher human development in countries with medium human development, because of increase in income and investment in countries that move from low-income level to medium income status. Institutions found to promote higher human development in countries with high and very high human development and negatively affect human development in countries with low and medium human development levels. Also, remittance inflows have positive effect on human development across all levels of human development but stronger in countries at lower level of human development. Thus, policymakers in OIC should formulate policies that will promote financial inclusion in low- and meddle-income countries to achieve higher human development. In addition, policymakers should revitalize institutions especially in countries with low and medium human development levels. Also, the cost of sending remittance into OIC should be reduce to attract more remittances into the member countries.