Geopolitical risk and digital financial inclusion in short-run panel dynamics

Digital financial inclusion (DFI) has become an increasingly important policy objective amid rapid digitalization and rising geopolitical fragmentation. This paper examines how geopolitical risks and foreign investment ecosystems influence financial inclusion outcomes in both developing and developed economies, adopting an interdisciplinary approach. Using panel data from 39 countries over the period 2016–2023, the study draws on sources such as the World Bank Global Findex Database, IMF Financial Access Survey, World Governance Indicators, Geopolitical Risk Index, and UNCTAD investment data, and applies a first-difference fixed-effects panel approach dynamic GMM/LSDVC robustness checks. The findings show that, besides the institutional and conditional macroeconomic factors, the persistence of DFI over time is the main, if not only, driver of the phenomenon. Foreign Direct Investment (FDI) exerts a significant positive effect once its interaction with geopolitical risk is accounted for, an effect that weakens as geopolitical risk rises and is concentrated in non-OECD economies. These findings have important implications for sustainable development, particularly SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry Innovation and Infrastructure), SDG 10 (Reduced Inequalities), and SDG 16 (Peace, Justice and Strong Institutions). By demonstrating how geopolitical instability constrains inclusive digital finance, the study highlights the importance of resilient governance and sustainable digital ecosystems for achieving equitable financial access.