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A Financial Inclusion Index For Indonesia

Author

Listed:
  • Hilman Hanivan

    (Statistics Indonesia)

  • Nasrudin

    (Statistics Indonesia)

Abstract

Numerous studies have constructed financial inclusion indexes for Indonesia, using a multidimensional approach. However, there is a problem with the methodology, which assumes that all the dimensions play the same role in defining financial inclusion, since they are based on equal weighting criteria. This paper aims to obviate concerns with the methodology by developing a more empirically based index, namely, a weighted multidimensional index of financial inclusion based on two-stage principal component analysis. In other words, we endogenize the weights. We find that usage is the most important dimension in defining financial inclusion in Indonesia, followed by availability and access.

Suggested Citation

  • Hilman Hanivan & Nasrudin, 2019. "A Financial Inclusion Index For Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 22(3), pages 1-16, October.
    • Handle: RePEc:idn:journl:v:22:y:2019:i:3e:p:1-16
    DOI: https://doi.org/10.21098/bemp.v22i3.1056
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    Cited by:

    1. Teck-Lee Wong & Wee-Yeap Lau & Tien-Ming Yip, 2020. "Cashless Payments and Economic Growth: Evidence from Selected OECD Countries," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 189-213.
    2. Oliphant, Elizabeth & Simon, Adam C., 2022. "The cost of sustainable palm oil: Should an Indonesian smallholder pursue RSPO-certification?," World Development Perspectives, Elsevier, vol. 26(C).
    3. Phelps, Jacob & Zabala, Aiora & Daeli, Willy & Carmenta, Rachel, 2021. "Experts and resource users split over solutions to peatland fires," World Development, Elsevier, vol. 146(C).
    4. Leijten, Floris & Sim, Sarah & King, Henry & Verburg, Peter H., 2021. "Local deforestation spillovers induced by forest moratoria: Evidence from Indonesia," Land Use Policy, Elsevier, vol. 109(C).
    5. Schydlowsky, Daniel M., 2020. "Prudential regulations for greening the financial system: Coping with climate disasters," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).

    More about this item

    Keywords

    Financial inclusion; Principal component analysis; Unequal weights;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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