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Which Financial Inclusion Indicators and Dimensions Matter for Income Inequality? A Bayesian Model Averaging Approach

Author

Listed:
  • Rogelio V. Mercado, Jr.

    (South East Asian Central Banks (SEACEN) Research and Training Centre)

  • Victor Pontines

    (South East Asian Central Banks (SEACEN) Research and Training Centre)

Abstract

This paper employs Bayesian model averaging (BMA) and uses posterior inclusion probability (PIP) values to evaluate which financial inclusion indicators, dimensions, and other determinants of income inequality should be considered in an empirical specification assessing the relationship between financial inclusion and income inequality, given model uncertainty. The results show that for the low-income country group, financial access and usage indicators and dimensions are the most relevant indicators. Unfortunately, nowhere in our baseline results and in almost all our sensitivity tests do we find PIP values higher than our set threshold value for any of our financial depth indicators and dimension. These results suggest that theoretical models linking financial inclusion nd income inequality could well focus on the role of financial access and usage by providing theoretical foundations on the mechanics as to how these two dimensions of financial inclusion impact income inequality.

Suggested Citation

  • Rogelio V. Mercado, Jr. & Victor Pontines, 2022. "Which Financial Inclusion Indicators and Dimensions Matter for Income Inequality? A Bayesian Model Averaging Approach," Working Papers wp47, South East Asian Central Banks (SEACEN) Research and Training Centre.
    • Handle: RePEc:sea:wpaper:wp47
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    File URL: https://www.seacen.org/publication-working.php?pid=702001-100481
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    Keywords

    Bayesian model averaging; financial inclusion; income inequality; Bayesian inference;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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