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Does financial inclusion reduce poverty and income inequality in developing countries? A panel data analysis

Author

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  • Md Abdullah Omar

    (Bangladesh Bank (The Central Bank of Bangladesh))

  • Kazuo Inaba

    (Ritsumeikan University)

Abstract

Financial inclusion is a key element of social inclusion, particularly useful in combating poverty and income inequality by opening blocked advancement opportunities for disadvantaged segments of the population. This study intends to investigate the impact of financial inclusion on reducing poverty and income inequality, and the determinants and conditional effects thereof in 116 developing countries. The analysis is carried out using an unbalanced annual panel data for the period of 2004–2016. For this purpose, we construct a novel index of financial inclusion using a broad set of financial sector outreach indicators, finding that per capita income, ratio of internet users, age dependency ratio, inflation, and income inequality significantly influence the level of financial inclusion in developing countries. Furthermore, the results provide robust evidence that financial inclusion significantly reduces poverty rates and income inequality in developing countries. The findings are in favor of further promoting access to and usage of formal financial services by marginalized segments of the population in order to maximize society’s overall welfare.

Suggested Citation

  • Md Abdullah Omar & Kazuo Inaba, 2020. "Does financial inclusion reduce poverty and income inequality in developing countries? A panel data analysis," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-25, December.
    • Handle: RePEc:spr:jecstr:v:9:y:2020:i:1:d:10.1186_s40008-020-00214-4
    DOI: 10.1186/s40008-020-00214-4
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    References listed on IDEAS

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    More about this item

    Keywords

    Financial inclusion; Poverty; Income inequality; Developing countries;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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