TY - JOUR

T1 - Fintech, financial inclusion and income inequality: a quantile regression approach

AU - Demir, Ayse

AU - Pesqué-Cela, Vanesa

AU - Altunbas, Yener

AU - Murinde, Victor

N1 - 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.

PY - 2022/1/2

Y1 - 2022/1/2

N2 - 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.

AB - 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.

KW - FinTech

KW - financial inclusion

KW - income inequality

KW - quantile regression

U2 - 10.1080/1351847X.2020.1772335

DO - 10.1080/1351847X.2020.1772335

M3 - Article

VL - 28

SP - 86

EP - 107

JO - European Journal of Finance

JF - European Journal of Finance

SN - 1351-847X

IS - 1

ER -