Thinking Inside the Box: A Closer Look at Financial Inclusion and Household Income

Abstract

Following Rosenbaum and Rubin (1983), we employ PSM to reconstruct counterfactuals using observational data. In our paper, the key variable of interest, 𝐹 𝑖 (financial inclusion) is binary, thus we can set this as the treatment variable. Using one-to-one matching, Table S1 shows the balancing of the variables before and after matching.After matching, all variables are well balanced, providing a bias of less than 5 per cent (%bias<5%).Moreover, because all t-test are not significant, we cannot reject that null hypothesis that there is no systematic difference between treatment and control groups. Figure S1 shows the histogram of matched sub-samples along common support. It shows that most of the observations are on support.

Testing the impact of financial inclusion on income convergence: Empirical evidence from Nigeria

“…Arguably, inequality could reduce if financial inclusion creates greater opportunities for the poor than the rich. Given that the rich are effectively served in the conventional banking system, then inequality is likely to fall as a result of pro‐poor‐driven financial inclusion (Zhang & Posso, 2019). There is a mounting body of empirical research (Anyanwu, Andrew, & Emeka, 2016; Caracciolo & Fabio, 2013) that examines the drivers of income convergence and convincingly reveal that household characteristics, human capital, and (un)employment, among others are key to inequality driven inclusive finance.…”

“…Financial inclusion has become a key pillar of the policies aimed at promoting inclusive development in the majority of countries around the world (Zhang & Posso, 2019). This emanates from the realization that an inclusive financial system could be instrumental in the reduction of poverty and income inequality (Dimova & Adebowale, 2018).…”

“…It is instructive to draw a conceptual demarcation between inclusive and exclusive finance. Inclusive finance occurs when individuals, regardless of income level, have access to a wide range of financial services needed to enhance their livelihoods (Adegboye & Samuel, 2018; Zhang & Posso, 2019). Through inclusive financial systems, vulnerable individuals and households are better disposed with an avenue to borrow and save, invest in education, and this allows them to build their assets and entrepreneurial ventures (Aliero, Abubakar, & Ibrahim, 2010).…”

“…In contrast, financial exclusion refers to a process by which poor and disadvantaged social groups face difficulties in accessing financial services (Zhang & Posso, 2019). A distinction thus needs to be drawn between those who are financially excluded because of access barriers (for instance, lack of collateral or the so‐called “hard‐to‐reach” populations, including women and rural poor) and those who are excluded by choice (what is aptly referred to as self‐exclusion).…”

“…There are theoretical arguments that predict that the welfare enhancing drive of financial inclusion will eventually trickle down to the poor and thus reduce income disparity (Anyanwu, 2014; Ibrahim et al, 2012). The extant micro‐level studies (Dimova & Adebowale, 2018; Nwosu & Orji, 2017; Ogunleye, 2017; Zhang & Posso, 2019) revolve around access to finance, income, poverty, welfare, and the gendered comparative benefit of financial inclusion. However, studies on the income convergence process of financial inclusion are very limited.…”