Does Financial Literacy Improve Financial Inclusion? Cross Country Evidence

74 Pages Posted: 11 Sep 2017

See all articles by Antonia Grohmann

Antonia Grohmann

German Institute for Economic Research (DIW Berlin)

Theres Klühs

Leibniz Universität Hannover - Institute of Economics

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Date Written: September 2017

Abstract

While financial inclusion is typically addressed by improving the financial infrastructure we show that financial literacy, representing the demand-side of financial markets, also has a beneficial effect. We study this effect at the cross-country level, which allows to consider institutional variation. Regarding “access to finance”, financial infrastructure and financial literacy are mainly substitutes. However, regarding the “use of financial services”, the effect of higher financial literacy strengthens the effect of more financial depth. The causal interpretation of these results is supported by IV-regressions. Moreover, the positive impact of financial literacy holds across income levels and several subgroups within countries.

Keywords: financial inclusion, financial literacy, financial institutions, financial development

JEL Classification: O1, G2, D14

Suggested Citation

Grohmann, Antonia and Klühs, Theres and Menkhoff, Lukas, Does Financial Literacy Improve Financial Inclusion? Cross Country Evidence (September 2017). DIW Berlin Discussion Paper No. 1682. Available at SSRN: https://ssrn.com/abstract=3034178 or http://dx.doi.org/10.2139/ssrn.3034178

Antonia Grohmann (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Theres Klühs

Leibniz Universität Hannover - Institute of Economics ( email )

United States

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

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