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Financial inclusion, rather than size, is the key to tackling income inequality

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  • David Martinez Turegano
  • Alicia Garcia-Herrero

Abstract

In this paper we assess empirically whether financial inclusion contributes to reducing income inequality when controlling for other key factors, such as economic development and fiscal policy. We conclude that financial inclusion contributes to reducing income inequality to a significant degree, while the size of the financial sector does not. The policy implication of this result is that financial inclusion should be at the forefront of government policies to reduce income inequality in a given economy. Given the broad way in which we have defined inequality in our empirical analysis, this means facilitating the use of credit to both households, especially low-income ones, as well as to small and medium-sized enterprises.

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  • David Martinez Turegano & Alicia Garcia-Herrero, 2015. "Financial inclusion, rather than size, is the key to tackling income inequality," Working Papers 1505, BBVA Bank, Economic Research Department.
    • Handle: RePEc:bbv:wpaper:1505
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    Cited by:

    1. Okowa, Ezaal, Vincent & Moses Owede, 2022. "‘Financial Inclusion-Income Inequality’ Nexus in Nigeria: Evidence from Dynamic Ordinary Least Square (DOLS) Modeling Approach," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 9(2), pages 84-94, February.
    2. Zhao, Congyu & Jia, Rongwen & Dong, Kangyin, 2023. "Does financial inclusion achieve the dual dividends of narrowing carbon inequality within cities and between cities? Empirical evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 195(C).
    3. Kouladoum, Jean-Claude & Wirajing, Muhamadu Awal Kindzeka & Nchofoung, Tii N., 2022. "Digital technologies and financial inclusion in Sub-Saharan Africa," Telecommunications Policy, Elsevier, vol. 46(9).
    4. Shubin Wang & Junsheng Ha & Hakan Kalkavan & Serhat Yüksel & Hasan Dinçer, 2020. "IT2-Based Hybrid Approach for Sustainable Economic Equality: A Case of E7 Economies," SAGE Open, , vol. 10(2), pages 21582440209, May.
    5. Nai Chiek Aik & Qiurui Zhang, 2023. "Use of Theil for a Specific Duality Economy: Assessing the Impact of Digital Inclusive Finance on Urban-Rural Income Gap in Chongqing," FinTech, MDPI, vol. 2(4), pages 1-12, September.
    6. Ozili, Peterson K, 2023. "Can social inclusion policies promote financial inclusion?," MPRA Paper 116971, University Library of Munich, Germany.
    7. Boniface Ngah EPO & Jules Médard NANA DJOMO & Mark Wiykiynyuy TANGWA & Éric Dieudonné OBAMA OBAMA, 2023. "Threshold effect of banking on income inequalities in developing countries: the importance of mobile money," Working Papers 23/073, European Xtramile Centre of African Studies (EXCAS).
    8. Mallela, Keerti & Singh, Sunny Kumar & Srivastava, Archana, 2023. "Remittances, financial development, and income inequality: A panel quantile regression approach," International Economics, Elsevier, vol. 175(C), pages 171-186.
    9. Younas, Zahid Irshad & Qureshi, Atiqa & Al-Faryan, Mamdouh Abdulaziz Saleh, 2022. "Financial inclusion, the shadow economy and economic growth in developing economies," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 613-621.
    10. Boniface Ngah EPO & Jules Médard NANA DJOMO & Mark Wiykiynyuy TANGWA & Éric Dieudonné OBAMA OBAMA, 2023. "Threshold effect of banking on income inequalities in developing countries: the importance of mobile money," Working Papers of the African Governance and Development Institute. 23/073, African Governance and Development Institute..
    11. Weidong Chen & Xiaohui Yuan, 2021. "Financial inclusion in China: an overview," Frontiers of Business Research in China, Springer, vol. 15(1), pages 1-21, December.
    12. Nandelenga, Martin Wafula & Oduor, Jacob, 2020. "Asymmetric analysis of finance - Inequality nexus: Evidence from sub-Saharan Africa," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).
    13. Loan Thi-Hong Van & Anh The Vo & Nhan Thien Nguyen & Duc Hong Vo, 2021. "Financial Inclusion and Economic GROWTH: An International Evidence," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(1), pages 239-263, January.
    14. Biruk Birhanu Ashenafi & Yan Dong, 2022. "Financial Inclusion, Fintech, and Income Inequality in Africa," FinTech, MDPI, vol. 1(4), pages 1-12, November.
    15. Shahid Manzoor Shah & Amjad Ali, 2022. "A Survey on Financial Inclusion: Theoretical and Empirical Literature Review," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(4), pages 310-330, December.
    16. Robert Huterski & Agnieszka Anna Huterska & Justyna Łapińska & Ewa Zdunek-Rosa, 2020. "The problem of savings exclusion and gross savings in the new European Union member states," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(3), pages 2470-2480, March.
    17. Chang, Lei & Iqbal, Sajid & Chen, Huangen, 2023. "Does financial inclusion index and energy performance index co-move?," Energy Policy, Elsevier, vol. 174(C).
    18. Mohamed Samy ElDeeb & Yasser Tawfik Halim & Esmat Mostafa Kamel, 2021. "The pillars determining financial inclusion among SMEs in Egypt: service awareness, access and usage metrics and macroeconomic policies," Future Business Journal, Springer, vol. 7(1), pages 1-19, December.
    19. Chima M. Menyelim & Abiola A. Babajide & Alexander E. Omankhanlen & Benjamin I. Ehikioya, 2021. "Financial Inclusion, Income Inequality and Sustainable Economic Growth in Sub-Saharan African Countries," Sustainability, MDPI, vol. 13(4), pages 1-15, February.
    20. Wale-Awe, Olawale & Evans, Olaniyi, 2023. "Financial inclusion through digital channels and the growth-inequality-poverty triangle: Evidence from Africa," MPRA Paper 119455, University Library of Munich, Germany.
    21. de Moraes, Claudio Oliveira & Cruz, Guilherme, 2023. "What do we know about the relationship between banks and income inequality? Empirical evidence for emerging and low-income countries," Journal of Economics and Business, Elsevier, vol. 123(C).
    22. Anh The Vo & Loan Thi-Hong Van & Duc Hong Vo & Michael Mcaleer, 2019. "Financial Inclusion And Macroeconomic Stability In Emerging And Frontier Markets," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 14(02), pages 1-15, June.
    23. Rajabrata Banerjee & Admasu Asfaw Maruta & Ronald Donato, 2023. "Does higher financial inclusion lead to better health outcomes? Evidence from developing and transitional economies," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(2), pages 363-401, April.
    24. Thereza Balliester Reis, 2021. "What is financial inclusion? A critical review," Working Papers 246, Department of Economics, SOAS University of London, UK.
    25. Biruk B. Ashenafi & Dong Yan, 2023. "Financial intermediation, inclusion, Fintech, and income inequality in Africa: Robust evidence from the supply and demand side data," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 52(2), July.

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    More about this item

    Keywords

    Emerging Economies; Financial Inclusion; Research; Working Paper;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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