Financial inclusion and poverty alleviation: an empirical examination

Abstract

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.