Essays on Financial Development and Financial Inclusion

This PhD thesis contributes to our understanding about financial development, focusing on three main topics: (1) the link between financial deepening and financial stability; (2) the determinants of financial inclusion; and (3) the effect of financial inclusion on improving economic welfare, which have received less attention in the literature. Our results suggest that (1) credit deepening is associated with increased banking fragility, which may lead to a higher probability of banking crisis. However, banking fragility is only related to the deepening of credit to non-financial corporations, but not to credit to households; (2) there is a strong positive relationship between formal institutions and financial inclusion. The positive impact of formal institutions on financial inclusion is weaker for a higher degree of financial barriers; (3) non-farm household enterprises, which have tried to apply for credit from banks and other financial institutions and finally managed to get credit, have a higher level of labor productivity than those that have not even tried to apply for credit in the first place. However, the positive impact of formal credit on labor productivity only appears in male-headed enterprises, but not in female-headed ones.