BEYOND ACCESS: HOW FINANCIAL INCLUSION SHAPES SUSTAINABLE DEVELOPMENT — A PANEL QUANTILE ARDL ANALYSIS

Whether widening financial access still advances sustainable development in economies that are already affluent and largely banked is unclear, yet it shapes how advanced-economy governments prioritize financial-sector policy. This study asks whether financial inclusion advances progress toward the Sustainable Development Goals (SDGs) across developed economies, and whether the effect is uniform or concentrated among laggards. Using an annual panel of 34 advanced economies from 2000 to 2025, we construct a multidimensional financial-inclusion index by principal component analysis (PCA), combining banking penetration with digital infrastructure and relate it to the composite SDG Index Score. Since the series are cross-sectionally dependent and of mixed integration order, we estimate a panel quantile autoregressive distributed lag (ARDL) model that separates short-run dynamics from long-run equilibrium and lets the effect of inclusion vary across the distribution of outcomes. Second-generation unit-root, cointegration and diagnostic tests support the design. The long-run effect of inclusion is positive and significant at the lower and middle quantiles but declines as performance rises, from about 4.1 index points per standard deviation at the 10th percentile to an insignificant 1.4 at the 90th, while the error-correction term is negative and significant throughout (about −0.29). Financial inclusion thus operates as a convergence instrument: policymakers should target it where sustainable-development gaps are widest. The paper’s originality is that it is, to our knowledge, the first to model the financial inclusion–sustainable development relationship across the entire conditional distribution of SDG performance in advanced economies, using a digitally augmented, PCA-based inclusion index within a panel quantile ARDL framework that separates short-run from long-run effects.