FINANCIAL INCLUSION FOR SELECTED OECD COUNTRIES

Year 2023, Volume: 17 Issue: 1, 82 - 86, 30.07.2023

Suat Teker , Dilek Lebleci Teker , Halit Guzelsoy

https://doi.org/10.17261/Pressacademia.2023.1758

Abstract

Purpose- Financial inclusion is defined as a process that ensures the ease of access, availability, and usage of the formal financial system for all members of an economy by emphasizing the use of accessibility and availability of financial services. A financial sector is measured and compared on four main features; debt is the size of financial institutions, access is the access and use of financial services by the users, efficiency is the efficiency in the provision of financial services, and stability is the stability in the provision of financial services. Financial inclusion, in short, is adults' access to and use of financial services. This study aims to measure the financial inclusion level for selected OECD countries from 2010-2021. Also, this study aims to estimate the effect of financial inclusion on economic growth and income inequality for selected countries.
Methodology- The data used in this study cover a range of variables related to financial inclusion from various institutions, including the IMF-Financial Access Survey (IMF-FAS), the World Bank - World Development Indicators (WB-WDI), the World Bank - Global Financial Development Database (WB-GFDD) and the Standardized World Income Inequality Database (SWIID). These variables provide insights into the dimensions and determinants of financial inclusion and their impact on economic and social outcomes for selected OECD countries. In the study, we run panel data regressions for each group separately, using GDP per capita as the dependent variable to determine the impact of the Financial Inclusion Index on economic growth. We also construct two different models for each group of countries with and without the added control variables into the models.
Findings- The analysis reveals that the effect of financial inclusion on economic growth is negative for all groups of countries. The impact is significant for Group 1 and Group 2. The magnitude of coefficients changes when we add control variables to the model. However, it does not change the significance level of the coefficients. The magnitude of the coefficients increases as countries’ per capita income increases. At the same time, the effect of financial inclusion on the GINI index is significant only in the model for Group 3 with control variables. The sign of the impact is negative. It implies that the GINI index decreases as the financial inclusion index increases. So, the effect of financial inclusion on income inequality is positive for countries in Group 3.
Conclusion- The empirical results did not support the relationship between financial inclusion and economic growth (GDP per capita). These results may be explained by advocating the financial sector's quick and fundamental digital transformation. Hence, the rules for availability, accessibility, and usage of financial products and system are completely changed in the past ten years. On the other hand, the relationship between financial inclusion and income inequality, measured by GINI Index, is consistent with the literature only for Group 3 countries (developing countries). The increase in the gap between rich-developed and developing countries may explain these results. An increase in financial inclusion still supports adjustments in income inequality in developing countries, but its effect is disappeared in developed countries in the last 12 years.

Keywords

Financial inclusion, economic growth, OECD countries, financial indicators, income inequity

References

• Appiah-Otoo, I., & Song, N. (2021). The Impact of Fintech on Poverty Reduction: Evidence from China. Sustainability. https://doi.org/10.3390/su13095225
• Dahiya, S., & Kumar, M. (2020). Linkage between Financial Inclusion and Economic Growth: An Empirical Study of the Emerging Indian Economy. Vision, 24(2), 184–193. https://doi.org/10.1177/0972262920923891
• Demirguc-Kunt, A., Klapper, L., & Singer, D. (2017). Financial Inclusion and Inclusive Growth: A Review of Recent Empirical Evidence [Working Paper]. World Bank. https://doi.org/10.1596/1813-9450-8040
• Fouejieu, A., Sahay, R., Cihak, M., & Chen, S. (2020). Financial inclusion and inequality: A cross-country analysis. The Journal of International Trade & Economic Development, 29(8), 1018–1048. https://doi.org/10.1080/09638199.2020.1785532
• Global Financial Development Database. (2022). [Text/HTML]. World Bank. https://www.worldbank.org/en/publication/gfdr/data/global-financial-development-database
• International Monetary Fund. (2022). Financial Access Survey (FAS). https://data.imf.org/?sk=E5DCAB7E-A5CA-4892-A6EA-598B5463A34C
• Khan, I., Khan, I., Sayal, A., & Khan, M. Z. (2021). Does financial inclusion induce poverty, income inequality, and financial stability: Empirical evidence from the 54 African countries? Journal of Economic Studies, ahead-of-print. https://doi.org/10.1108/JES-07-2020-0317
• Nandi, B. K., Hasan, G. Q., & Kabir, Md. H. (2021). A tale of the financial inclusion-growth nexus and the degree of financial inclusion: A dynamic panel approach on selected developing countries. Journal of Financial Economic Policy, 14(3), 381–402. https://doi.org/10.1108/JFEP-03-2021-0071
• OECD (2023), Population with tertiary education (indicator). doi: 10.1787/0b8f90e9-en (Accessed on 27 June 2023)
• Polloni-Silva, E., da Costa, N., Moralles, H. F., & Sacomano Neto, M. (2021). Does Financial Inclusion Diminish Poverty and Inequality? A Panel Data Analysis for Latin American Countries. Social Indicators Research, 158(3), 889–925. https://doi.org/10.1007/s11205-021-02730-7
• Ratnawati, K. (2020). The Impact of Financial Inclusion on Economic Growth, Poverty, Income Inequality, and Financial Stability in Asia. The Journal of Asian Finance, Economics and Business, 7(10), 73–85. https://doi.org/10.13106/JAFEB.2020.VOL7.NO10.073
• Sarma, M. (2008). Index of Financial Inclusion (Working Paper No. 215). Working Paper. https://www.econstor.eu/handle/10419/176233
• Sawadogo, R., & Semedo, G. (2021). Financial inclusion, income inequality, and institutions in sub-Saharan Africa: Identifying cross-country inequality regimes. International Economics, 167, 15–28. https://doi.org/10.1016/j.inteco.2021.05.002
• Sethi, D., & Sethy, S. (2018). Financial inclusion matters for economic growth in India: Some evidence from cointegration analysis. International Journal of Social Economics, 46. https://doi.org/10.1108/IJSE-10-2017-0444
• Solt, F. (2022). The Standardized World Income Inequality Database, Versions 8-9 [Data set]. Harvard Dataverse. https://doi.org/10.7910/DVN/LM4OWF
• World Development Indicators | DataBank. (2023). https://databank.worldbank.org/source/world-development-indicators