Assessing the effect of financial inclusion on human capital in West Africa: an heterogeneous analysis based on income level

Human capital accumulation is very important for the development of any nation. Access to finance, including financial inclusion, is also a very important tool to finance human capital accumulation. However, in developing countries, individuals’ access to finance remains low due to the weak financial inclusion rate and income level. This situation limits individuals’ capacity to finance their education to accumulate human capital. Nevertheless, in SSA, including the Economic Community of West African States (ECOWAS) sub-region, the financial inclusion–human capital nexus with a focus on income level is under consideration. It is in this context that this paper was undertaken to examine the financial inclusion effect on human capital, by considering the heterogeneous effect of income level. Data are collected from the International Monetary Fund (IMF), Financial Access Survey (FAS), the World Development Indicators (WDI), and the United Nations Development Programme (UNDP) databases covering the period 2004–2020, and the Fully Modified Ordinary Least Squares (FMOLS) technique is used to estimate the model. The outcomes reveal that an increase in financial inclusion improves human capital by 0.049 in ECOWAS, 0.105 in lower middle-income, and 0.031 in low-income nations. These indicate that FI in low-income nations has a lower effect on human capital than in lower middle-income countries. These outcomes suggest that improving human capital requires financial inclusion that promotes financial services access and use. Also, an improvement in income level in ECOWAS is necessary to ease access to finance.