The Effect of Financial Inclusion on Household Income in Ethiopia
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Date
2019-06
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Addis Ababa University
Abstract
Financial inclusion is enabling the delivery of banking services at an affordable cost to the vast
sections of disadvantaged and low-income groups. It is becoming a core element in economic growth, development, and poverty alleviation. Based on a nationally representative cross-sectional data from the Ethiopian Socio-economic Survey (ESS) carried out in 2015/16, this paper investigates the effect of financial inclusion on household’s income in Ethiopia. The study employed both descriptive and econometric approaches to data analysis. In the econometric section, Quantile regression and Propensity Score Matching methods have been used in order to control for endogeneity problem that may exist among financial inclusion and income. The finding indicates that access to finance has a significant positive effect on household's income. Financial inclusion has a larger effect on the lower quantiles of household income. The 10th quantile income of financially excluded households is 37 percent lower than financially included households while the top 90th quantile income of financially exclude households is 17percent lower than of financially included households. This shows financial inclusion benefits more low-income households than high-income households, which supports those findings that argue financial inclusion lowers poverty and income inequality.
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Keywords
Financial Inclusion, Household Income, Quantile Regression