Assessing the Effects of Financial Inclusion on Reducing Poverty and Income Inequality in South Asia: Evidence from a CS-ARDL Approach

Abstract

This study aims to examine the effects of financial inclusion on poverty reduction and income inequality with a focus on South Asian economies from 2004 to 2020 by employing dynamic panel models augmented with a comprehensive composite financial inclusion index and a set of well-known macroeconomic predictors. The primary results confirm the long-run relationships between financial inclusion, poverty headcount ratio and the Gini index, while the results of the cross-sectionally augmented autoregressive distributed lags model indicate that financial inclusion is significantly effective in reducing poverty and income disparities. Moreover, the findings reveal that real per capita income, institutional quality, age dependency ratio, credit to the private sector, inflation rate, school enrolment rate, trade openness, ratio of mobile users, and information and communication technologies are highly significant in intermediating the aggregate effects of financial inclusion on reducing poverty and income inequality. The findings clearly show that the greater impact of financial inclusion on reducing poverty and income inequality is primarily based on the development, enhancement and promotion of financial inclusion in South Asian economies, where the financially excluded segment constitutes a significant proportion of society.

Poverty and financial development: an asymmetric and nonlinear ARDL analysis for India

“…The authors employed system GMM and panel corrected standard estimation technique and report that FD, ICT access, availability and usage played remarkable role in removing severity and intensity of poverty in SSA countries. A more recent study by Azimi (2022) examined the impact of financial inclusion on poverty alleviation in case of eight south Asian economies from 2004 to 2020. Using cross-sectionally augmented autoregressive distributed lag model (CS-ARDL), the authors found that financial inclusion is effective in reducing poverty and income inequality in south Asia both for short-run and long-run.…”

“…The optimists on the other hand believe that FD is a viable developmental tool helpful in combating poverty (Odhiambo, 2009; Rewilak, 2017; Bolarinwa et al ., 2021; Azimi, 2022). These scholars argue that FD helps poor to get access to financial services like credit facilities, insurance, savings, etc.…”

Analysis of the Relationship between the Implementation of Circular Economy Principles and Financial Inclusion to Poverty Alleviation in Indonesia

“…In the Asian context, financial inclusion indicators such as bank branches, deposit accounts, and the number of loans granted significantly impact income inequality in the long run [19]. Moreover, in South Asian countries, comprehensive financial inclusion efforts have proven effective in reducing poverty and income inequality, emphasizing the importance of factors such as institutional quality and credit to the private sector [20]. Therefore, expanding financial inclusion is crucial in Indonesia to break the cycle of poverty and increase economic opportunities for marginalized groups.…”