Financial inclusion and economic development in selected east African countries: A human development index approach

• Countries with similar income may differ significantly in HDI • Broad financial inclusion policies translate economic growth into higher HDI. • Mobile banking and digital payments are vital for financial inclusion. • Microfinance and cooperatives expand financial inclusion for low-income groups. • Unit-root, cointegration & cross-dep tests validate data; FMOLS & DOLS yield estimates. While Gross Domestic Product (GDP) per capita remains a common indicator of economic progress, it often fails to accurately reflect a population's true well-being. Countries with similar income levels can exhibit significant disparities in human development, as measured by the Human Development Index (HDI). The existing literature emphasizes the influence of financial inclusion on economic growth, but overlooks its broader implications for development. It also focuses on conventional metrics, such as bank branches, Automated Teller Machines (ATMs), and outstanding loans. Relying on traditional measures while neglecting recent Information and Communication Technology (ICT) advancements and monetary policy instruments, such as interest rate spread, poses a challenge for effective policy implementation. This study extends financial inclusion indicators to empirically assess their impact on shaping development outcomes in developing countries, such as those in East Africa. A suite of econometric techniques was employed to analyze the data, including panel unit root, cointegration, and cross-sectional dependence tests. Additionally, the Fully Modified Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) methods have been employed to estimate the model coefficients. The findings reveal how financial inclusion significantly enhances the ability of developing countries to translate economic growth into human development. The study concludes by recommending policy interventions to expand financial access and strengthen institutional frameworks to support inclusive development pathways.