This study analyzes the impact of financial inclusion on poverty reduction in 156 countries belonging to different income groups during the 2004-2019 period. We construct a novel composite financial inclusion index and apply both static and dynamic panel estimation methods to examine the impact of financial inclusion on two different poverty levels. Our results indicate that financial inclusion has a significant negative association with extreme poverty in developing countries but not in high-income countries. The effect of financial inclusion on moderate poverty is weaker than that on extreme poverty. We also examine the conditional relationship between gender inequality and financial inclusion, finding that improvement in gender inequality enhances the effect of financial inclusion on both extreme and moderate poverty in developing countries. The effectiveness of financial inclusion is influenced by how equally the disadvantaged groups, particularly women, can access and utilize financial services. Our findings suggest that policymakers can use financial inclusion as a poverty reduction tool.
This study analyzes the impact of financial inclusion on economic growth in 104 developing countries from 2004–2019. We construct a novel composite financial inclusion index and apply the dynamic panel estimation technique to examine the impact of financial inclusion. The results indicate that financial inclusion positively correlates with economic growth in developing countries but not in high-income countries. This study shows that financial inclusion affects economic growth primarily by expanding opportunities for lower-income people. With increased financial access, those in the lower-income bracket can expand their economic activity, which results in economic growth in developing countries. In high-income countries, access to financial services is already high, and financial inclusion may not offer new opportunities to a larger segment of the population. The study also compares financial inclusion and financial development. The results suggest that financial inclusion contributes to financial development in developing countries by enhancing access to financial services. The findings recommend that policymakers in developing countries may use financial inclusion to increase economic growth.
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