This study examines whether financial inclusion can help to promote financial development. We analyze the determinants of financial development using a system generalized method of moments (System GMM) in a panel of 97 countries during 2004- 2012. The empirical results suggest that financial inclusion is statistically significant determinant of financial development. Specifically, we found that the impact of financial inclusion on financial development is positive and significant. The GDP per capita has a positive and significant relation with financial development, thus enhancing of financial inclusion postulates financial development and hence economic development. The market based indicator namely stock market is insignificant determinant of financial inclusion. The results are robust using alternative estimation with financial development indicators (domestic credit to private sector and stocks traded, turnover ratio).
Keywords: Financial development, financial inclusion and system GMM.