Financial Inclusion and Poverty Reduction: An Analysis of Panel Data 2010-2019

Abstract

The purpose of this research paper is to determine the contribution of financial inclusion on the reduction of poverty. Peru was used as a case study to analyze the policy process in reduction of poverty through financial inclusion using data for the period of 2010-2019. The general research hypothesis is that financial inclusion can contribute to the reduction of poverty. Panel data model was specified whose estimation was made through the fixed effects estimator.

Within the specified econometric model, the dependent variable was the poverty rate, while the explanatory variable of interest, in this case, financial inclusion, was measured through a multidimensional index of financial inclusion. Additionally, a set of control variables was incorporated: economic growth, income inequality, labor informality rate, and average number of years of education achieved.

The results of the research demonstrate evidence in favor of the general research hypothesis, confirming that financial inclusion presents a statistically significant contribution of 1% on the reduction of poverty in Peru during the period 2010-2019. Likewise, regarding the control variables, it is identified that the increase in the levels of economic growth and average years of education are also relevant for the reduction of poverty. Additionally, it is corroborated that the reduction of the levels of income inequality and labor informality lead to an improvement in reduction of the poverty rates.