Financial Inclusion: New Measurement and Cross-Country Impact Assessment

35 Pages Posted: 11 Jul 2018

See all articles by Cyn-Young Park

Cyn-Young Park

Asian Development Bank

Rogelio Mercado

The SEACEN Centre; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Multiple version iconThere are 3 versions of this paper

Date Written: June 19, 2018

Abstract

This paper introduces a new index of financial inclusion for 151 economies using principal component analysis to compute weights for aggregating 9 indicators of access, availability, and usage. Using the index, this paper investigates factors influencing financial inclusion. The results show that while higher output growth significantly covaries with greater financial inclusion for high and middle low-income economies, financial sector development and policies promoting financial inclusion play an important role in improving financial inclusion for low income economies. It then assesses the impact of financial inclusion on poverty, income inequality, higher entrepreneurship, and higher female empowerment. Using a cross-sectional approach, the results provide robust evidence that economies with high financial inclusion have significantly lower poverty rates, higher entrepreneurship, and higher female empowerment. However, the impacts of financial inclusion on poverty and other social goals are heterogeneous across country income groups, with the unit increase in financial inclusion associated with the largest reduction in poverty for low income economies.

Keywords: financial inclusion, poverty, income inequality

JEL Classification: G18, O11, O16

Suggested Citation

Park, Cyn-Young and Mercado, Rogelio, Financial Inclusion: New Measurement and Cross-Country Impact Assessment (June 19, 2018). Available at SSRN: https://ssrn.com/abstract=3199427 or http://dx.doi.org/10.2139/ssrn.3199427

Cyn-Young Park (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines
(632) 632-5473 (Phone)

HOME PAGE: http://www.adb.org

Rogelio Mercado

The SEACEN Centre ( email )

Level 5, Sasana Kijang, Bank Negara Malaysia
2 Jalan Dato’ Onn
Kuala Lumpur, 50480
Malaysia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

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