Abstract
This study examines the effect of financial inclusion on poverty and vulnerability to poverty of Ghanaian households. Using data extracted from the seventh round of the Ghana Living Standards Survey in 2016/17, a multiple correspondence analysis is employed to generate a financial inclusion index, and three-stage feasible least squares is used to estimate households’ vulnerability to poverty. Endogeneity associated with financial inclusion is resolved using distance to the nearest bank as an instrument in an instrumental variables probit technique. Results showed that while 23.4% of Ghanaians are considered poor, about 51% are vulnerable to poverty. We found that an increase in financial inclusion has two effects on household poverty. First, it is associated with a decline in a household’s likelihood of being poor by 27%. Second, it prevents a household’s exposure to future poverty by 28%. Female-headed households have a greater chance of experiencing a larger reduction in poverty and vulnerability to poverty through enhanced financial inclusion than do male-headed households. Furthermore, financial inclusion reduces poverty and vulnerability to poverty more in rural than in urban areas. Governments are encouraged to design or enhance policies that provide an enabling environment for the private sector to innovate and expand financial services to more distant places. Government investment in, and regulation of, the mobile money industry will be a necessary step to enhancing financial inclusion in developing countries.
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Source: Authors’ generated estimates from the GLSS7
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Acknowledgements
We would like to thank the Ghana Statistical Service for granting us the permission to use the GLSS7 data for this study. We also express our gratitude to the two anonymous reviewers whose suggestions and comments have helped to improve the quality of the paper.
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Appendices
Appendix 1: post estimation plot of category coordinates
Appendix 2: summary statistics of variables used in the analyses
Variables | Full | Location | Gender | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Rural | Urban | Male | Female | |||||||
Mean | SD | Mean | SD | Mean | SD | Mean | SD | Mean | SD | |
Poor (yes = 1; no = 0) | 0.236 | 0.425 | 0.396 | 0.489 | 0.079 | 0.269 | 0.260 | 0.438 | 0.177 | 0.382 |
Vulnerability to poverty (yes = 1; no = 0) | 0.512 | 0.500 | 0.779 | 0.415 | 0.249 | 0.432 | 0.527 | 0.499 | 0.472 | 0.499 |
Ownership of mobile money account | 0.093 | 0.290 | 0.071 | 0.258 | 0.093 | 0.290 | 0.083 | 0.276 | 0.080 | 0.272 |
Ownership bank account | 0.190 | 0.393 | 0.118 | 0.323 | 0.261 | 0.439 | 0.203 | 0.403 | 0.158 | 0.365 |
Ownership of insurance policy | 0.235 | 0.424 | 0.212 | 0.408 | 0.254 | 0.435 | 0.228 | 0.419 | 0.246 | 0.431 |
Access to credit | 0.040 | 0.196 | 0.033 | 0.177 | 0.028 | 0.164 | 0.030 | 0.171 | 0.030 | 0.170 |
Receipt of remittance | 0.303 | 0.460 | 0.275 | 0.447 | 0.269 | 0.443 | 0.207 | 0.405 | 0.432 | 0.496 |
Age of household head | 46.994 | 14.179 | 47.596 | 14.602 | 46.402 | 13.728 | 46.360 | 13.659 | 48.568 | 15.286 |
Household size | 5.652 | 3.291 | 6.349 | 3.693 | 4.968 | 2.671 | 6.088 | 3.483 | 4.567 | 2.439 |
Household size squared | 42.772 | 60.527 | 53.941 | 74.803 | 31.817 | 39.067 | 49.198 | 67.771 | 26.802 | 31.558 |
Female (male = 0; female = 1) | 0.287 | 0.452 | 0.248 | 0.432 | 0.325 | 0.468 | ||||
Rural (urban = 0; rural = 1) | 0.495 | 0.500 | 0.522 | 0.500 | 0.428 | 0.495 | ||||
Educated (no = 0; yes = 1) | 0.501 | 0.500 | 0.373 | 0.484 | 0.626 | 0.484 | 0.554 | 0.497 | 0.369 | 0.483 |
Consulted at hospital (no = 0; yes = 1) | 0.098 | 0.297 | 0.105 | 0.306 | 0.091 | 0.288 | 0.081 | 0.272 | 0.141 | 0.348 |
Married (no = 0; yes = 1) | 0.653 | 0.476 | 0.682 | 0.466 | 0.624 | 0.484 | 0.816 | 0.388 | 0.247 | 0.431 |
Employment status | ||||||||||
Unemployed | 0.070 | 0.255 | 0.066 | 0.249 | 0.073 | 0.260 | 0.063 | 0.243 | 0.087 | 0.281 |
Retired/inactive | 0.091 | 0.288 | 0.084 | 0.277 | 0.098 | 0.298 | 0.074 | 0.262 | 0.134 | 0.341 |
Employee | 0.249 | 0.433 | 0.138 | 0.345 | 0.358 | 0.479 | 0.301 | 0.459 | 0.120 | 0.325 |
Self employed | 0.590 | 0.492 | 0.711 | 0.453 | 0.471 | 0.499 | 0.562 | 0.496 | 0.660 | 0.474 |
Region | ||||||||||
Western | 0.100 | 0.300 | 0.119 | 0.324 | 0.081 | 0.273 | 0.104 | 0.305 | 0.089 | 0.285 |
Central | 0.085 | 0.279 | 0.093 | 0.290 | 0.078 | 0.268 | 0.075 | 0.264 | 0.110 | 0.313 |
Greater Accra | 0.162 | 0.369 | 0.031 | 0.174 | 0.290 | 0.454 | 0.161 | 0.367 | 0.166 | 0.372 |
Volta | 0.087 | 0.281 | 0.115 | 0.320 | 0.058 | 0.234 | 0.085 | 0.279 | 0.091 | 0.288 |
Eastern | 0.106 | 0.308 | 0.123 | 0.328 | 0.090 | 0.286 | 0.100 | 0.299 | 0.123 | 0.328 |
Ashanti | 0.194 | 0.396 | 0.155 | 0.362 | 0.233 | 0.423 | 0.174 | 0.379 | 0.244 | 0.430 |
Brong Ahafo | 0.095 | 0.293 | 0.106 | 0.308 | 0.083 | 0.276 | 0.094 | 0.292 | 0.096 | 0.295 |
Northern | 0.101 | 0.301 | 0.142 | 0.349 | 0.061 | 0.239 | 0.129 | 0.335 | 0.031 | 0.175 |
Upper East | 0.042 | 0.201 | 0.068 | 0.251 | 0.017 | 0.130 | 0.047 | 0.211 | 0.031 | 0.173 |
Upper West | 0.028 | 0.166 | 0.048 | 0.214 | 0.009 | 0.094 | 0.033 | 0.178 | 0.017 | 0.130 |
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Koomson, I., Villano, R.A. & Hadley, D. Effect of Financial Inclusion on Poverty and Vulnerability to Poverty: Evidence Using a Multidimensional Measure of Financial Inclusion. Soc Indic Res 149, 613–639 (2020). https://doi.org/10.1007/s11205-019-02263-0
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DOI: https://doi.org/10.1007/s11205-019-02263-0