Availability of Banking Services and Income Inequality: Evidence from Developing Economies of Asia Pacific.

Abstract

This study aims to observe the impact of financial inclusion from a micro perspective, availability of banking services, on income inequality. The analysis is carried out by using an annual panel data set constructed with a sample of eight developing countries of the Asia Pacific region for the period of 2005-2019 to empirically estimate the impact of the availability of banking services on income inequality. A composite variable consisting of number of bank branches and automated teller machines is developed to measure the availability of banking services, whereas income inequality is measured by the latest release of the Standardized World Income Inequality Database (SWIID). The results show that greater availability of banking services robustly reduces income inequality across countries. Besides, the study generates evidence that greater women empowerment and better regulatory quality can reduce income inequality. In contrast, urbanization and globalization can deteriorate income equality in the short run. The central message of this study is in favor of further extending the formal banking services to the unbanked segments and females of the population and enhancing regulatory roles with better policy measures to maximize the grand social welfare and ensure sustainable development.