Financial aid and financial inclusion: Does risk uncertainty matter?

Abstract

This paper examines whether aid flows targeted to the financial sector can improve a recipient country's financial inclusion by using data on 21 developing countries identified as both aid recipients and those practicing financial inclusion from the AidData and WBES databases. The empirical results reveal that financial aid is an important determinant for a firm's and country's financial inclusion. For countries receiving high aid flows, its impact on financial inclusion appears to be stronger and significant. The positive results also appear in countries with low-risk uncertainty (e.g. low economic risk, low unemployment rate, and low terrorism threats). Hence, our research contributes to the promotion of financial inclusion for aid-receiving developing countries and is able to track related risk factors that affect this relationship.