COVID-19 Response Needs to Broaden Financial Inclusion to Curb the Rise in Poverty

Posted: 2 Jun 2020 Last revised: 27 Jul 2021

See all articles by Roxana Gutierrez-Romero

Roxana Gutierrez-Romero

Queen Mary University of London

Mostak Ahamed

University of Sussex - School of Business, Management and Economics

Date Written: May 29, 2020

Abstract

The ongoing COVID-19 pandemic risks wiping out years of progress made in reducing global poverty. In this paper, we explore to what extent financial inclusion could help mitigate the increase in poverty using cross-country data across 79 low- and lower-middle-income countries. Unlike other recent cross-country studies, we show that financial inclusion, particularly financial outreach, is a key driver of poverty reduction in these countries. This effect is not direct, but indirect, by mitigating the detrimental effect that inequality has on poverty. Our findings are consistent across all the different measures of poverty used and robust to instrumental variables. Our forecasts suggest that by 2021 the world’s population living on less than $5.50 dollars a day would increase by 231 million people, of which nearly 107.8 million people would be pushed into extreme poverty living on less than $1.90 per day. However, urgent improvements in financial inclusion could substantially reduce the impact on poverty.

Keywords: Financial inclusion, poverty, inequality, COVID-19, forecasts

JEL Classification: G21; G22; I30; I32; C53

Suggested Citation

Gutierrez-Romero, Roxana and Ahamed, Mostak, COVID-19 Response Needs to Broaden Financial Inclusion to Curb the Rise in Poverty (May 29, 2020). World Development, Vol. 138, No. 2, 2021, Available at SSRN: https://ssrn.com/abstract=3616426 or http://dx.doi.org/10.2139/ssrn.3616426

Roxana Gutierrez-Romero (Contact Author)

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

HOME PAGE: http://https://roxanagutierrez.wordpress.com/

Mostak Ahamed

University of Sussex - School of Business, Management and Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

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