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http://dx.doi.org/10.13106/jafeb.2021.vol8.no12.0019

Revisiting Financial Inclusion and Income Inequality Nexus: Evidences from Selected Economies in Asia  

ALI, Jamshed (Department of Management Sciences, COMSATS University)
KHAN, Muhammad Arshad (Department of Economics, COMSATS University, Pakistan Institute of Development Economics)
WADOOD, Misbah (Department of Business Administration, Faculty of Management Sciences, International Islamic University)
KHAN, Usman Shaukat (Department of Management Science, COMSATS University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.12, 2021 , pp. 19-29 More about this Journal
Abstract
This study aims to measure financial inclusion and examine its impact on income inequality in a panel of 18 Asian countries over the period 1997-2017. Two alternative approaches for developing financial inclusion index are used: one approach following the methodology of Sarma (2008), while the other is the Dynamic Factor Model (DFM)-based index. The impact of individual indicators and index of financial inclusion on inequality in income is analyzed. The Generalized Method of Moment (GMM) approach is used for empirical analysis. The results indicate that micro-level financial inclusion has a weak negative and statistically significant impact on income inequality. Macro-level index and all individual indicators of financial inclusion do not affect income inequality in the selected sample of economies. The income inequality issues have different natures and cannot be fixed by financial inclusion only. It needs holistic structural reforms to enable fair distribution of income and make an equitable financial system. Financial inclusion is a relatively less important intervention tool regarding fixing the issue of income inequality. This is one of the first studies that used the DFM method for financial inclusion indices construction.
Keywords
Financial Inclusion; Income Inequality; Dynamic Factor Model;
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