Inclusive finance and sustainability: The dynamic spillover effects of uncertainties on access to credit

Abstract

A firm's access to domestic credit is crucial in inclusive finance for businesses, particularly small and medium-sized enterprises, to invest and grow. Sustainable and inclusive economic growth requires a healthy private sector with access to financial resources. This paper explores how uncertainty from major economies (measured by Uncertainty Spillover indices) can limit domestic credit availability in the private sector. Analysing a panel dataset encompassing 100 developed and developing economies from 1996 to 2019, the research reveals that uncertainties stemming from China and the United States significantly reduce the availability of domestic financial resources. Uncertainties surrounding other G7 economies (Canada, France, Germany, Italy, Japan, and the United Kingdom) also exhibit a negative association; however, their effects are statistically insignificant. The robustness of these findings is confirmed across various empirical models and income classifications. Possible implications for inclusive finance and sustainable economic growth are also discussed.