FinTech, financial inclusion and income inequality: A quantile regression approach

Ayse Demir, V Pesque-Cela, Y Altunbas, V Murinde

Research output: Contribution to journalArticlepeer-review

23 Citations (Scopus)
109 Downloads (Pure)

Abstract

Although theory suggests that financial market imperfections–mainly information asymmetries, market segmentation and transaction costs–prevent poor people from escaping poverty by limiting their access to formal financial services, new financial technologies (FinTech) are seen as key enablers of financial inclusion. Indeed, the UN 2030 Agenda for Sustainable Development (UN-2030-ASD) and the G20 High-Level Principles for Digital Financial Inclusion (G20-HLP-DFI) highlight the importance of harnessing the potential of FinTech to reduce financial exclusion and income inequality. This paper investigates the interrelationship between FinTech, financial inclusion and income inequality for a panel of 140 countries using the Global Findex waves of survey data for 2011, 2014 and 2017. We posit that FinTech affects inequality directly and indirectly through financial inclusion. We invoke quantile regression analysis to investigate whether such effects differ across countries with different levels of income inequality. We uncover new evidence that financial inclusion is a key channel through which FinTech reduces income inequality. We also find that while financial inclusion significantly reduces inequality at all quantiles of the inequality distribution, these effects are primarily associated with higher-income countries. Overall, our results support the aspirations of the UN-2030-ASD and G20-HLP-DFI. Highlights Harnessing the potential of FinTech to reduce financial exclusion and income inequality has been proposed by the UN and G20. We posit that FinTech affects income inequality directly and indirectly through financial inclusion. We invoke quantile regression analysis to investigate whether the effects of FinTech differ across countries with different levels of income inequality. We find that financial inclusion is a key channel through which FinTech reduces income inequality, at all quantile levels, primarily among higher-income countries.

Original languageEnglish
Pages (from-to)86-107
Number of pages22
JournalThe European Journal of Finance
Volume28
Issue number1
Early online date1 Jun 2020
DOIs
Publication statusPublished - 2022

Bibliographical note

© 2020 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits
unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Funder

We acknowledge financial support from the ESRC-NSFC [ES/P005241/1] Research Grant on ?Developing financial systems to support sustainable growth in China?The role of innovation, diversity and financial regulation?, the DFID-ESRC [ES/N013344/2] Research Grant on ?Delivering Inclusive Financial Development and Growth??under the Growth Research Programme (DEGRP) Call 3, and the AXA Research Fund; Department for International Development; Economic and Social Research Council. We acknowledge useful comments from participants at the Financial Inclusion and Fintech Conference at the School of Finance and Management, SOAS University of London, on 25?26 March 2019, in particular Gerhard Kling and Desire Kanga. Useful comments were also received from participants at the 4th Workshop on Macroeconomic Policies in Emerging and Developing Countries, at Loughborough University on 11?12 June 2019, in particular Christopher Green. We also thank two anonymous referees and the editor of the European Journal of Finance for their constructive comments. We acknowledge financial support from the ESRC-NSFC (ES/P005241/1) Research Grant on ?Developing financial systems to support sustainable growth in China?The role of innovation, diversity and financial regulation?, the DFID-ESRC (ES/N013344/2) Research Grant on ?Delivering Inclusive Financial Development and Growth?, and the AXA Research Fund. We are responsible for all surviving errors Funding Information: We acknowledge useful comments from participants at the Financial Inclusion and Fintech Conference at the School of Finance and Management, SOAS University of London, on 25–26 March 2019, in particular Gerhard Kling and Desire Kanga. Useful comments were also received from participants at the 4th Workshop on Macroeconomic Policies in Emerging and Developing Countries, at Loughborough University on 11–12 June 2019, in particular Christopher Green. We also thank two anonymous referees and the editor of the European Journal of Finance for their constructive comments. We acknowledge financial support from the ESRC-NSFC (ES/P005241/1) Research Grant on ‘Developing financial systems to support sustainable growth in China – The role of innovation, diversity and financial regulation’, the DFID-ESRC (ES/N013344/2) Research Grant on ‘Delivering Inclusive Financial Development and Growth’, and the AXA Research Fund. We are responsible for all surviving errors Publisher Copyright: © 2020 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group

Keywords

  • FinTech
  • financial inclusion
  • income inequality
  • quantile regression

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)

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