Institutional quality and the financial inclusion-poverty alleviation link: Empirical evidence across countries

Abstract

Institutional quality in the form of extractive or inclusive institutions influences economic outcomes. We examine the positive moderating effect of institutional quality on the relationship between financial inclusion and poverty alleviation over a sample of seventy-five developing and developed countries (2004–2017). We use six different financial inclusion measures together with an informal political institution variable, applying both cross-section and quantile analysis. We find that institutional quality intensifies the beneficial effects of financial inclusion on poverty rates. This effect is more pronounced in poorer economies than in wealthier ones. Our findings yield implications for policy makers seeking to tackle the institutional causes of poverty.

Institutional quality in the form of extractive or inclusive institutions influences economic outcomes. We examine the positive moderating effect of institutional quality on the relationship between financial inclusion and poverty alleviation over a sample of seventy-five developing and developed countries (2004–2017). We use six different financial inclusion measures together with an informal political institution variable, applying both cross-section and quantile analysis. We find that institutional quality intensifies the beneficial effects of financial inclusion on poverty rates. This effect is more pronounced in poorer economies than in wealthier ones. Our findings yield implications for policy makers seeking to tackle the institutional causes of poverty.