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COVID-19 response needs to broaden financial inclusion to curb the rise in poverty

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  • Gutiérrez-Romero, Roxana
  • Ahamed, Mostak

Abstract

The ongoing COVID-19 pandemic risks wiping out years of progress made in reducing global poverty. In this paper, we explore to what extent financial inclusion could help mitigate the increase in poverty using cross-country data across 79 low- and lower-middle-income countries. Unlike other recent cross-country studies, we show that financial inclusion, particularly financial outreach, is a key driver of poverty reduction in these countries. This effect is not direct, but indirect, by mitigating the detrimental effect that inequality has on poverty. Our findings are consistent across all the different measures of poverty used and robust to instrumental variables. Our forecasts suggest that by 2021 the world’s population living on less than $5.50 dollars a day would increase by 231 million people, of which nearly 107.8 million people would be pushed into extreme poverty living on less than $1.90 per day. However, urgent improvements in financial inclusion could substantially reduce the impact on poverty.

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  • Gutiérrez-Romero, Roxana & Ahamed, Mostak, 2021. "COVID-19 response needs to broaden financial inclusion to curb the rise in poverty," World Development, Elsevier, vol. 138(C).
  • Handle: RePEc:eee:wdevel:v:138:y:2021:i:c:s0305750x20303569
    DOI: 10.1016/j.worlddev.2020.105229
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    More about this item

    Keywords

    Financial inclusion; Poverty; Inequality; COVID-19; Forecasts;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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