The effect of financial inclusion on income inequality in selected developing countries

Income inequality is one of the most important and stable problems in societies, and neglecting this issue can have many negative effects. Nowadays, financial inclusion as a factor affecting income inequality has attracted the attention of financial institutions and policymakers. The literature related to financial inclusion, especially in developing countries, is still in the early stages. This research investigates the effect of financial inclusion on income inequality in 18 selected developing countries in the period of 2005-2019 using panel data model. Since financial inclusion is a multi-dimensional concept with different indicators in each dimension, this study examines the two dimensions of access and usage separately. Also, the effect of the variables including inflation, economic growth, unemployment and trade openness has been investigated. The results indicate that financial inclusion has a negative and significant effect on income inequality both in terms of access and usage, and expanding financial inclusion helps to reduce income inequality. In both dimensions inflation has a negative effect on income inequality and show that the increase of this variable causes income inequality to decrease. The coefficients of the GDP, unemployment and trade openness are positive and this shows that the increase of each of these variables increases inequality.