The impact of financial inclusion on consumers saving and borrowing behaviours: a retrospective cross-sectional evidence from the UAE and the USA

Abstract

This paper highlights the impact of financial inclusion on individuals' borrowing and saving decisions in the United States and the United Arab Emirates. It does so, using data from the 2014 Global Financial Inclusion database, and an empirical strategy consisting of first testing the significance of the joint bivariate model over its binary conterparts using the Lagrange multiplier test, followed by a contrast between the fully-parametric and semi-parametric specifications of the saving and borrowing equations. Based on model performance measures, the semi-parametric bivariate probit specification is identified as a better framework for describing the two processes of saving and borrowing, with a correlation coefficient of 12.3%. Although no significant difference exists between UAE and US residents in borrowing behavior, we find that US residents are 31.4% more likely to save than their UAE counterparts. In addition, and in line with the Permanent Income Hypothesis, the results reveal the absence of an income based saving or borrowing gradient in the two countries. Conversely, we found the prevalence of a gender based saving (12.4%) and borrowing (13.8%) inequality in favor of the male gender. Furthermore, access to a bank account and a debit card, companies policy of direct wage and salary transfer, and government transfer programs with direct deposit options are all financial inclusion strategies that are found to significantly raise the likelihood of saving and borrowing. As such, companies with payroll practices based on cash or physical paycheck issuing, especially in the US, should revise such policy to create more financial inclusion, and thereby more saving potential which in turn would contribute to further borrowing, investment and growth of the national economy.

Economic Policy Uncertainty and Financial Innovation: Is There Any Affiliation?

“…Furthermore, Arslanian and Fischer ( 2019 ) suggested that financial innovation, particularly technological advancement in providing financial services, results in easy access to the unbanked population in the formal financial system. Similar findings are available in the literature (Agoba et al, 2017 ; Amoah et al, 2020 ; see, for instance, Niankara and Muqattash, 2020 ). So it is possible to believe that financial innovation broke the chain of demographic and social attribute issues that are dragging people to avail financial benefits.…”

Government and private sectors' electronic transfer practices and financial inclusion in the economic community of the West African States

“…Indeed, unlike the case of high‐income countries such as USA and UAE, where Niankara and Muqattash (2020) found government transfer deposits to not significantly influence saving behaviour, here we found that government transfer receipts increase individual' MPS by 11.6% within ECOWAS. This finding further corroborates with Keho (2019), which reports domestic savings to significantly influence economic growth in both, short and long run in Ivory Coast.…”

“…In addition, within ECOWAS country members, accounting for individual income level, education does not appear to influence savings behaviour significantly. This finding contrasts with the 20.9% education‐based gradient reported by Niankara and Muqattash (2020) in the context of the US and UAE. This observation might however be explained by the fact that typically, in high‐income countries, individuals with the most education are the main drivers of economic activities, through active participation in the formal sector, whereas in low‐income countries, much of economic activities are concentrated in the informal sector, where little education is needed.…”

“…This characteristic contributes further to explaining the observed differences in income effect on individual propensity to save between high-and low-income economies. Indeed, while Niankara and Muqattash (2020) found no income-based gradient in saving in the United States and UAE, our present analysis shows that, within ECOWAS, a significant income-based gradient in saving prevails, with higher income level leading to significantly higher MPS within the bloc.…”

“…For this reason, our current research endeavour will focus on bridging this gap. In the next section, we present our behavioural economic model of saving and borrowing choices, which was initially introduced in Niankara and Muqattash (2020).…”