Financial inclusion and energy poverty: Empirical evidence from Ghana

Abstract

With myriads of policy options being considered to alleviate energy poverty, the financial inclusion-energy poverty nexus has received little attention despite its potential. Using two rounds of living standards survey data from Ghana, this study examines the effect of financial inclusion on energy poverty using multidimensional measures. Endogeneity associated with financial inclusion is instrumented using distance to the nearest bank. We found that the share of energy poor households in Ghana reduced slightly from about 81% to 80% between 2012/13 and 2016/17. Our estimates show that a standard deviation increase in financial inclusion is associated with a decrease in household energy poverty between 1.380 and 1.556 standard deviations. This outcome is consistent across different quasi-experimental methods. The results show more consistency for rural and male-headed households. Improvement in financial inclusion is likely to result in the biggest reduction in energy poverty for those in the employee category. We identify consumption poverty and household net income as potential channels through which financial inclusion influences energy poverty. • We examine the effect of financial inclusion on energy poverty. • The study uses two rounds of living standards survey data from Ghana. • We find that financial inclusion has the capability to reduce energy poverty. • Energy poverty in Ghana reduced from 81% to 80% between 2012/13 and 2016/17. • Important channels from financial inclusion to energy poverty are identified.