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The Contribution of Financial Inclusion in Reducing Poverty and Income Inequality in Developing Countries

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  • Ichraf Ouechtati

Abstract

This study employed three different dynamic panel data estimators to empirically examine the effect of financial inclusion on poverty and income inequality for a sample of 53 developing countries between 2004 and 2017. The findings revealed a negative relationship between financial inclusion and poverty; within which availability of credit and access to deposit accounts at commercial banks tend to significantly alleviate poverty. These results support the idea that financial access, as well as financial development, contribute to reducing poverty by increasing the money supply or credit and improving the welfare of the poor. Furthermore, it was concluded that a high bank penetration rate and credit facilitate access to financial services for the poor and reduce income inequality. This result was corroborated by the bias-corrected fixed effects estimator at significance levels of 5% and 1%, respectively. Those proxy variables for financial inclusion that exert no significant effects could be explained by weak financial institutional structures, plus the need to incorporate elements of financial inclusion into a stronger framework, which would exert an effective impact on poverty and income inequality.

Suggested Citation

  • Ichraf Ouechtati, 2020. "The Contribution of Financial Inclusion in Reducing Poverty and Income Inequality in Developing Countries," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(9), pages 1051-1061.
  • Handle: RePEc:asi:aeafrj:v:10:y:2020:i:9:p:1051-1061:id:1999
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    Citations

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    Cited by:

    1. João Jungo & Mara Madaleno & Anabela Botelho, 2022. "Financial Regulation, Financial Inclusion and Competitiveness in the Banking Sector in SADC and SAARC Countries: The Moderating Role of Financial Stability," IJFS, MDPI, vol. 10(1), pages 1-24, March.
    2. João Jungo, 2024. "Institutions and economic growth: the role of financial inclusion, public spending on education and the military," Review of Economics and Political Science, Emerald Group Publishing Limited, vol. 9(3), pages 298-315, April.
    3. Rocío Maehara & Luis Benites & Alvaro Talavera & Alejandro Aybar-Flores & Miguel Muñoz, 2024. "Predicting Financial Inclusion in Peru: Application of Machine Learning Algorithms," JRFM, MDPI, vol. 17(1), pages 1-25, January.
    4. Samuel Felix Okereke & Richard Kyarem & Martins Iyoboyi, 2023. "Access to Finance and Human Development in Sub-Saharan Africa," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(7), pages 1222-1233, July.
    5. Ernawati Ernawati & Tajuddin Tajuddin & Syamsir Nur, 2021. "Does Government Expenditure Affect Regional Inclusive Growth? An Experience of Implementing Village Fund Policy in Indonesia," Economies, MDPI, vol. 9(4), pages 1-12, November.
    6. David Damiyano & Stephen Mago, 2023. "An Analysis of the Impact of Financial Inclusion on Poverty and Development: Case of SACU Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 141-147, November.
    7. Md Jamil, Abd Rahim & Law, Siong Hook & Khair-Afham, M.S. & Trinugroho, Irwan, 2024. "Financial inclusion and income inequality in developing countries: The role of aging populations," Research in International Business and Finance, Elsevier, vol. 67(PA).
    8. Antonella Francesca Cicchiello & Amirreza Kazemikhasragh & Stefano Monferrá & Alicia Girón, 2021. "Financial inclusion and development in the least developed countries in Asia and Africa," Journal of Innovation and Entrepreneurship, Springer, vol. 10(1), pages 1-13, December.
    9. Ichraf Ouechtati, 2023. "Financial Inclusion, Institutional Quality, and Inequality: an Empirical Analysis," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 620-644, June.
    10. Peterson K. Ozili & David Mhlanga, 2024. "Why is financial inclusion so popular? An analysis of development buzzwords," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(1), pages 231-253, January.

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