Income inequality and financial stability: how relevant is financial inclusion? - evidence from cross-country analysis

Abstract

Our research investigates the role of financial inclusion as a catalyst for improving income inequality and enhancing financial stability across countries through a sample including 190 countries from 2002 to 2021. Our findings reveal that increased levels of financial inclusion are associated with lower income inequality, indicating that broader access to financial services can facilitate wealth accumulation and economic participation among marginalized populations. Additionally, we observe a positive relationship between financial inclusion and financial stability, suggesting that improved access to formal financial services can mitigate systemic risks associated with informal and unregulated financial activities. However, the effectiveness of financial inclusion policies in addressing income inequality and promoting financial stability varies across countries. The effectiveness of financial inclusion in promoting financial stability will be less in countries with developing economies than in developed countries. Therefore, policymakers must adopt tailored approaches that consider country-specific contexts to maximize the impact of financial inclusion initiatives