Examining the Relationship between Financial Inclusion, Financial Stability and FDI: A Study for India

With increased footprint of multinational enterprises (MNEs) in developing countries consequent to globalisation, the role of financial stability in these economies has assumed increasing importance for foreign investors. Simultaneously, developing economies, such as India, are also taking measures to include a larger proportion of population under the net of financial services to ensure greater financial inclusion. Measures taken to support financial inclusion are adding to the financial stability. Further, well-built financial structures tend to invite more foreign investments. The study attempts to empirically examine the association between financial inclusion and financial stability over the period of 2001-2020 using ARDL framework; and also, examines the linkage between financial stability and FDI for India. The results indicated that India's measures to support financial inclusion are likely to bring financial penetration impact for India and hence, boost financial stability. Further, the results suggested positive causal association between FS and FDI in the long-run.