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Testing the impact of financial inclusion on income convergence: Empirical evidence from Nigeria
Author(s) -
Ibrahim Saifullahi Sani,
Aliero Haruna Mohammad
Publication year - 2020
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12413
Subject(s) - financial inclusion , economics , endogeneity , economic inequality , income distribution , comprehensive income , per capita income , convergence (economics) , poverty , demographic economics , distribution (mathematics) , income inequality metrics , total personal income , inequality , labour economics , econometrics , finance , macroeconomics , economic growth , public economics , financial services , gross income , mathematical analysis , demography , mathematics , tax reform , sociology , state income tax
Financial inclusion, as a key pillar for inclusive development, has long been considered as an important instrument for reducing poverty and income inequality. However, the income convergence effect of financial inclusion remains only partially explored. Using longitudinal data covering three survey waves on Nigerian households, this study explores the potential of financial inclusion as an instrument for reducing income disparity. After controlling for the endogeneity issues, the results of instrumental variable linear and quantile regressions consistently show a strong nexus between financial inclusion and per capita income. This positive effect is experienced by all households regardless of income distribution. The decomposition results reveal that ab initio, financial inclusion resulted in income divergence leading to widening inequality across the households with various income distributions. However, the income convergence started from the middle to the higher income household categories, with the lowest income lagging behind in the second wave. The lowest income households eventually converged in the data of the third wave. In this sense, it can be argued that financial inclusion could play an important role in the reduction of income inequality.