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Constructing a financial inclusion index for Mexican municipalities

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  • Dircio-Palacios-Macedo, María del Carmen
  • Cruz-García, Paula
  • Hernández-Trillo, Fausto
  • Tortosa-Ausina, Emili

Abstract

Access to financial services varies sharply around the world among countries but also within regions and municipalities in the same country. To identify this important variation multivariate indices have been considered previously but they should have an adequate formulation that results in relevant information for policy proposals. Many Financial Inclusion (FI) Indices have been constructed using methodologies that do not allow identifying subdimensions within the broad dimensions of access and usage in which the entity (country or municipality) could be lagging. In this respect our contribution is to construct a novel FI index that encompass different subdimensions of access and usage which are determined previously by exploratory factor analysis. The aggregation of our index is as a weighted geometric mean with the weights derived from DEA Benefit of the Doubt (BoD). In other formulations the weights imposed in multivariate indices have been a source of criticism when determined by the researcher discretionally or derived by factor or principal component analysis which have some shortcomings. We construct a Geometric BoD index for Mexican municipalities in 2020 considering that our FI index formulation is also appropriate to use for any other country or region. Our results show that the importance of each dimension is different for each municipality in Mexico which in turn indicates that each of them can suffer of low levels of FI for a variety of reasons.

Suggested Citation

  • Dircio-Palacios-Macedo, María del Carmen & Cruz-García, Paula & Hernández-Trillo, Fausto & Tortosa-Ausina, Emili, 2023. "Constructing a financial inclusion index for Mexican municipalities," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s1544612322005451
    DOI: 10.1016/j.frl.2022.103368
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    More about this item

    Keywords

    Composite indicator; Financial inclusion; Mexico;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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