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Financial inclusion matter for poverty, income inequality and financial stability in developing countries: new evidence from public good theory

Ismail Khan (Department of Management, Sunway Business School, Sunway University, Subang Jaya, Malaysia)
Iftikhar Khan (Department of Management Sciences, COMSATS University Islamabad, Abbottabad Campus, Islamabad, Pakistan)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 6 March 2023

365

Abstract

Purpose

This paper aims to examine the influence of financial inclusion (FI) on poverty, income inequality and financial stability from the perspective of public good (PG) theory in developing countries.

Design/methodology/approach

This study applies the fixed effects model (FEM), pooled ordinary least square (OLS) regression and generalized method of moment (GMM) across panal data of 69 developing countries from 2002 to 2020 inclusive.

Findings

Multiple regression analyses show that FI reduces poverty and income inequality while improving financial stability. Secondary enrolment ratio, GDP per capita, and trade openness reduce poverty and income inequality. However, a higher inflation rate increases poverty and income inequality while reducing financial stability. Finally, age dependency ratio and population do not affect poverty, income inequality or financial stability.

Research limitations/implications

The regulators and policymakers in developing countries should raise the level of formal FI by expanding the size of the formal financial sector and improving the access of the large unbanked population to financial products/services. Improving FI enables the unbanked population to take over productive activities and ease consumption, which in turn complementing economic growth.

Social implications

The increase in FI enables the developing countries to include the financially excluded population through formal financial products and services, which improve financial stability and eradicate poverty and income inequality in society. Thus, the FI enhances the social welfare of society.

Originality/value

This is the first study that examines the impact of FI poverty, income inequality and financial stability in the context of developing countries. This study contributes to the theoretical implications of the PG theory by examining the influence of FI on poverty, income inequality and financial stability in the context of developing countries.

Keywords

Acknowledgements

The authors acknowledge support, guidance and valuable comments throughout the research write-up of Professor Yuka Fujimoto, Sunway Business School, Sunway University, Malaysia. Her valuable comments and guidance significantly help the authors to improve the manuscript quite considerably. The authors are also thankful to Miss Shahida Suleman (PhD Student), Economic and Finance Department, Sunway University, Malaysia for sharing her pearls of wisdom within the various quantitative econometric techniques. Finally, the authors sincerely thank Dr Muhammad Asim Afidi, COMSATS University, Islamabad, Pakistan for his critical reviewers of the methodology section, and suggestions for improving the quality of the paper.

The authors sincerely thank anonymous reviewers and the Editor-in-Chief for providing critical comments and suggestions for improving the quality of the paper.

Citation

Khan, I. and Khan, I. (2023), "Financial inclusion matter for poverty, income inequality and financial stability in developing countries: new evidence from public good theory", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-10-2021-1627

Publisher

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Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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