Determinants and Heterogeneity of District Level Financial Inclusion in Rajasthan, India: Evidence from Swamy’s Panel Data Random Coefficient Model

Abstract

Financial inclusion promotes access to affordable financial services for marginalised groups, supporting economic growth. However, many households in India remain financially excluded despite banking sector progress. This study examines the heterogeneity and determinants of financial inclusion across 30 districts of Rajasthan over the period 1994-2023, with a specific focus on deposit and credit penetration as key dimensions of financial inclusion. This study employs a range of well-established panel data econometric techniques – namely, Pooled Ordinary Least Squares Model, Fixed Effects Model, Random Effects Model, Panel-Corrected Standard Errors, Feasible Generalized Least Squares, Generalized Method of Moments, and Swamy’s Random Coefficient Model - to analyze district-level data. In this study, two models are estimated taking per capita deposit and per capita credit as dependent variables. The explanatory variables include the number of bank branches, per capita net district domestic product, manufacturing activity, and population growth. The findings consistently indicate that banking infrastructure and per capita net district domestic product significantly promote financial inclusion, whereas manufacturing activity and population growth exhibit heterogeneous effects across districts. Accordingly, the study advocates for tailored district-specific interventions, with particular emphasis on expanding banking infrastructure and fostering local economic development. The results also reveal significant district-level heterogeneity, supporting the use of advanced panel techniques.