The role of financial inclusion in achieving the Sustainable Development Goals: evidence from a fragile economy

Abstract

This study aims to examine whether financial inclusion advances sustainable development in a fragile and institutionally constrained economy. Using Palestine as a case study, it assesses the association between financial inclusion and a composite measure of sustainable development capturing both economic and social dimensions of the Sustainable Development Goals (SDGs) over the period 2012–2024. This study adopts a quantitative econometric design grounded in technological and macroeconomic perspectives. Financial inclusion is measured using multiple banking and financial indicators, including nonperforming loans, the number of bank accounts, the number of bank branches and offices, automated teller machines (ATMs), total deposits and total credit facilities. Sustainable development is measured using a composite Z-score index. Fixed effects (FE) models are used for the main estimations, while one-year-lagged specifications are used as a robustness check. Results indicate a positive and statistically significant association between financial inclusion and sustainable development in Palestine. Evidence suggests that digital and credit-based channels (e.g. accounts, ATMs, deposits and credit facilities) contribute more consistently to economic and social progress than traditional physical outreach (bank-branch expansion), which appears weak and can be occasionally adverse. For fragile settings, the findings imply that policymakers and financial institutions should prioritize digital financial services and inclusive credit mechanisms to accelerate progress toward the SDGs. The results also indicate that expanding physical branch networks alone may be insufficient and should be complemented (or substituted where appropriate) by technology-enabled channels and access-to-credit policies. This study adds context-specific evidence from Palestine to the literature on the financial inclusion–sustainable development nexus in fragile economies. It contributes by operationalizing sustainable development as a composite Z-score index spanning economic and social indicators and by highlighting that, under institutional constraints, digital and credit-driven inclusion channels may yield stronger development payoffs than conventional branch expansion.