THE RELATIONSHIP BETWEEN FINANCIAL INCLUSION AND INCOME INEQUALITY; EVIDENCE FROM TURKEY

Year 2022, Volume: 20 Issue: 4, 401 - 414, 31.12.2022

Nevzat Çalış , Emre Gökçeli

https://doi.org/10.11611/yead.1177426

Cited By: 2

Abstract

The purpose of this study is to assess the impact of financial inclusion on income inequality in Turkey using the VAR approach from 2010 to 2021. The principal component anaysis technique is employed to create our own indicator representing financial inclusion, which contains the number of POS devices, the number of bank accounts, and the number of ATMs. The findings indicate that there is a reverse link between financial inclusion and income inequality. In other words, financial inclusion associated with more equitable distribution of income in Turkey. Furthermore, the Granger causality test is used to establish the direction of causality between variables. It has been observed that financial inclusion granger causes lower income inequality. However, gini index, which measures income inequality does not granger causes financial inclusion. As a results, a unidirectional causality is found from financial inclusion to income inequality in Turkey.

Keywords

Financial Inclusion, Income Inequality, Vector Autoregression Method and Granger Causality Test

References

• Agyemang-Badu, A. A., Agyei. K. and Duah, E. K. (2018) Financial Inclusion, Poverty and Income Inequality: Evidence from Africa, Spiritan International Journal of Poverty Studies, 2 (2).
• Alı, J., Khan, M. A., Wadood, M., & Khan, U. S. (2021). Revisiting Financial Inclusion and Income Inequality Nexus: Evidences From Selected Economies in Asia. The Journal of Asian Finance, Economics and Business, 8(12), 19-29.
• Ali, M., Hashmi, S. H., Nazir, M. R., Bilal, A., & Nazir, M. I. (2021). Does Financial Inclusion Enhance Economic Growth? Empirical Evidence From The ISDB Member Countries. International Journal of Finance & Economics, 26(4), 5235-5258.
• Bkwayep Nguemnang, Y., & Tsafack, N. R. (2020). Remittances, Financial Inclusion and Income Inequality in Africa. University Library of Munich, Germany. https://mpra.ub.uni-muenchen.de/99684/
• Chandrarin, G., Sanusi, A., Imron, A., & Yuniarti, S. (2018). An Empirical Study on Income Equality, Economic Growth and Financial Inclusion in Indonesia: Model Development on SMES Financing. International Journal of Education Economics and Development, 9(4), 346-365.
• Chinoda, T., & Mashamba, T. (2021). Fintech, Financial Inclusion and Income Inequality Nexus in Africa. Cogent Economics & Finance, 9(1), 1986926.
• Demir, A., Pesque-Cela, V., & Murinde, V. (2020). Threshold Effects of Financial Inclusion on Income Inequality. London: SOAS Centre for Global Finance Working Paper Series no. 2/2020.
• Dickey, D. A., & Fuller, W. A. (1979). Distribution of The Estimators for Autoregressive Time Series with A Unit Root. Journal of The American Statistical Association, 74(366a), 427-431.
• Doğan, E., & Güler, C. (2021). An Analysis Of The Impacts Of Fınancial Inclusion On Income Inequality In The Fragile Five Countries. Marmara Üniversitesi İktisadi ve İdari Bilimler Dergisi, 43(1), 1-20.
• Granger, C. W. (1969). Investigating Causal Relations by Econometric Models and Cross-Spectral Methods. Econometrica: journal of the Econometric Society, 424-438.
• Khan, I., Khan, I., Sayal, A. U., & Khan, M. Z. (2022). Does Financial Inclusion Induce Poverty, Income Inequality, and Financial Stability: Empirical Evidence from The 54 African Countries? Journal of Economic Studies. 49(2), 303-314.
• Kim, J. H. (2016). A Study on The Effect of Financial Inclusion on The Relationship Between Income Inequality and Economic Growth. Emerging Markets Finance and Trade, 52(2), 498-512.
• Kling, G., Pesqué-Cela, V., Tian, L., & Luo, D. (2022). A Theory of Financial Inclusion and Income Inequality. The European Journal of Finance, 28(1), 137-157.
• Lan, H. H., & Thuong, P. T. H. (2019). Financial Inclusion and Income Inequality: Empirical Evidence from Transition. Economies. Journal of Economics and Development, 21, 23-34.
• Le, Q., Ho, H., & Mai, N. (2019). The Impact of Financial Inclusion on Income Inequality in Transition Economies. Management Science Letters, 9(5), 661-672.
• Liew, V. K. S. (2004). Which Lag Length Selection Criteria Should We Employ? Economics Bulletin, 3(33), 1-9.
• Menyelim, C. M., Babajide, A. A., Omankhanlen, A. E., & Ehikioya, B. I. (2021). Financial Inclusion, Income Inequality and Sustainable Economic Growth in Sub-Saharan African Countries. Sustainability, 13(4), 1780.
• Omar, M. A., & Inaba, K. (2020). Does Financial Inclusion Reduce Poverty and Income Inequality in Developing Countries? A Panel Data Analysis. Journal of economic structures, 9(1), 1-25.
• Ouechtati, I. (2020). The Contribution of Financial Inclusion in Reducing Poverty and Income Inequality in Developing Countries. Asian Economic and Financial Review, 10(9), 1051-1061.
• Pina, G. (2018). Macro and Micro-Financial Liberalizations, Savings, and Growth. Journal of Financial Economic Policy, 10(2), 290-309.
• Ratnawati, K. (2020). The İmpact of Financial Inclusion on Economic Growth, Poverty, Income Inequality, and Financial Stability in Asia. The Journal of Asian Finance, Economics and Business, 7(10), 73-85.
• Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is The Relationship Between Financial Development And Economic Growth Monotonic? Evidence From A Sample of Middle-Income Countries. World development, 68, 66-81.
• Sani Ibrahim, S., Ozdeser, H., & Cavusoglu, B. (2019). Financial Inclusion As A Pathway to Welfare Enhancement And Income Equality: Micro-Level Evidence From Nigeria. Development Southern Africa, 36(3), 390-407.
• Sawadogo, R., & Semedo, G. (2021). Financial Inclusion, Income Inequality, and Institutions in Sub-Saharan Africa: Identifying Cross-Country Inequality Regimes. International Economics, 167, 15-28.
• Tita, A. F., & Aziakpono, M. J. (2017). The Relationship Between Financial Inclusion and Income Inequality in Sub-Saharan Africa: Evidence From Disaggregated Data. African Review of Economics and Finance, 9(2), 30-65.
• Tsouli, D. (2022). Financial Inclusion, Poverty, and Income Inequality: Evidence from European Countries. Ekonomika, 101(1), 37-61.
• Wijeweera, A., & Mounter, S. (2008). A VAR Analysis on The Determinants of FDI Inflows: The Case of Sri Lanka. Applied Econometrics and International Development, 8(1).
• Zhang, Q., & Posso, A. (2019). Thinking Inside The Box: A Closer Look at Financial Inclusion and Household Income. The Journal of Development Studies, 55(7), 1616-1631.
• Zia, I. Z., & Prasetyo, P. E. (2018). Analysis of Financial Inclusion Toward Poverty and Income Inequality. Journal Ekonomi Pembangunan: Kajian Masalah Ekonomi dan Pembangunan, 19(1), 114-125.