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Does Financial Literacy Improve Financial Inclusion? Cross Country Evidence

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  • Antonia Grohmann
  • Theres Klühs
  • Lukas Menkhoff

Abstract

While financial inclusion is typically addressed by improving the financial infrastructure we show that financial literacy, representing the demand-side of financial markets, also has a beneficial effect. We study this effect at the cross-country level, which allows to consider institutional variation. Regarding “access to finance”, financial infrastructure and financial literacy are mainly substitutes. However, regarding the “use of financial services”, the effect of higher financial literacy strengthens the effect of more financial depth. The causal interpretation of these results is supported by IV-regressions. Moreover, the positive impact of financial literacy holds across income levels and several subgroups within countries.

Suggested Citation

  • Antonia Grohmann & Theres Klühs & Lukas Menkhoff, 2017. "Does Financial Literacy Improve Financial Inclusion? Cross Country Evidence," Discussion Papers of DIW Berlin 1682, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1682
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    More about this item

    Keywords

    Financial inclusion; financial literacy; financial institutions; financial development;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • G2 - Financial Economics - - Financial Institutions and Services
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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