Does Economic Policy Uncertainty Reduce Financial Inclusion?

International Journal of Banking and Finance

22 Pages Posted: 11 May 2021 Last revised: 22 Oct 2021

Date Written: May 7, 2021

Abstract

This paper examines whether economic policy uncertainty (EPU) reduces the level of financial inclusion. I predict that high EPU should have a negative effect on the level of financial inclusion. I argue that high EPU will discourage financial institutions from providing basic financial services to low end customers and unbanked adults, and this will lead to a decrease in the level of financial inclusion. Using a sample of 22 countries, I find that EPU does not have a significant impact on financial inclusion. None of the nine indicators of financial inclusion have a significant direct relationship with EPU. Also, I find some evidence that the combined effect of high EPU and high nonperforming loans reduces financial inclusion, particularly through bank branch contraction and a reduction in the use of electronic payments. Meanwhile, the use of formal accounts and credit cards increases in times of high credit supply and high EPU.

Keywords: Financial inclusion, policy uncertainty, economic policy uncertainty, business cycle, non-performing loan, cost efficiency, cost to income ratio, access to finance, formal account, credit cards, debit cards, mobile payments, electronic payment, borrowings, savings bank branch, unbanked adults

JEL Classification: D14, D18, G21, G28

Suggested Citation

Ozili, Peterson K, Does Economic Policy Uncertainty Reduce Financial Inclusion? (May 7, 2021). International Journal of Banking and Finance, Available at SSRN: https://ssrn.com/abstract=3841486

Peterson K Ozili (Contact Author)

Independent ( email )

Nigeria
Nigeria
Abuja
Nigeria

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