The Impact of Institutional Quality on Digital Financial Inclusion: Global Evidence

This study investigates the impact of institutional quality on digital financial inclusion (DFI) across 191 countries from 2004 to 2023, with a particular focus on regional and income-group heterogeneities. Using a two-step system generalised method of moments (GMM) estimator, the analysis addresses endogeneity, autocorrelation, and country-specific effects. The digital financial inclusion index is constructed through principal component analysis (PCA) of nine indicators representing access, usage, and quality, while the institutional quality index is derived from six World Governance Indicators. The findings reveal that institutional quality exerts a positive and significant influence on DFI, with government effectiveness, regulatory quality, and control of corruption emerging as the most influential dimensions. The effects are strongest in lower-middle-income countries and in developed regions such as North America. Long-run and marginal-effect analyses further confirm that stronger institutions enhance DFI. Robustness checks using alternative estimation techniques confirm the stability of the results. This study provides the first global empirical evidence linking institutional quality to digital financial inclusion, offering new insights into governance-driven financial ecosystems and practical policy implications for strengthening institutional frameworks to promote inclusive digital finance across diverse socio-economic contexts.