Asymmetric analysis of finance - Inequality nexus: Evidence from sub-Saharan Africa

This paper examines the effect of financial inclusion on income inequality for a selected group of sub-Saharan African (SSA) countries. Financial inclusion is said to have potential to reduce income disparity. In order to mitigate the aggregation bias that have prevailed in previous studies the present analysis is undertaken in a time series data by using the Nonlinear Autoregressive Distributed Lag (NARDL) framework. We use both liquidity liabilities or M3 and credit to private sector as proxies for financial inclusion. We find that in both short-run and long-run, financial inclusion has asymmetric effects on income disparity. We also observe presence of long-run equilibrium between financial inclusion and income inequality, although the speed of adjustment varies between countries. In addition, we also find that positive (or negative) financial inclusion shock reduces (or exacerbates) income inequality in some countries. And the effect of financial inclusion to income inequality is sensitive to time dynamics. Furthermore, trade openness, GDP per capita and human capital enhance the reduction of income inequality. These findings offer important policy implications to governments to continuously reform their financial inclusion strategies and incorporate uncertainties.