Abstract
State-led financial inclusion programmes have been implemented in many developing countries, but their effectiveness in raising welfare remains widely debated. In this article, we report evidence on this issue, against the backdrop of recent policy initiatives on financial inclusion in India. We employ Theil’s entropy-based index to estimate diversification in consumption expenditure, and use this as a measure of welfare. Using household-level panel data across all regions of the country, we find evidence that greater financial inclusion increases diversity in non-food items. Further, we also notice that there is a shift in consumption basket from food items to non-food items. These findings suggest an improvement in welfare for both rural as well as urban households.
Highlights
Financial1 inclusion is considered to be a crucial element in fostering economic growth and development of a country, through facilitating easier availability of credit, savings, payment, and insurance options to a large section of people (Chibba 2009)
Financial Inclusion and Household Welfare: An Entropy-Based... (Chai et al 2015; Chakrabarty and Mandi 2019; Falkinger and Zweimüller 1996; Theil and Finke 1983). We examine this link in this article by investigating whether inclusion in the formal financial system by opening of bank accounts can lead to increase in consumption diversification through increase in income, proxied through monthly per capita expenditure (MPCE)
We start the discussion of this section with the results obtained by running two-stage panel data regressions using Eqs. 5 and 6. This approach is employed to examine the effect of financial inclusion on consumption diversification through one plausible channel, i.e. increase in consumption expenditure
Summary
Financial inclusion is considered to be a crucial element in fostering economic growth and development of a country, through facilitating easier availability of credit, savings, payment, and insurance options to a large section of people (Chibba 2009). As mentioned before, given the scale and scope of the PMJDY financial inclusion programme, its take-up, and its impact on households’ consumption might not be apparent immediately after the launch of the scheme To address this concern, we include another time-dummy variable that takes the value ‘0’ for the first five waves, and ‘1’ for the four waves. In our study, we include Asset Index as an explanatory variable in the empirical model Social characteristics such as caste and religion play an important role in consumption pattern for households especially in developing countries like India. This may lead to possible widening of the consumption basket We, run another six set of regressions employing Eq 7, in which we include, the purely exogenous financial inclusion dummy variables in the second stage to account for the existence of such separate effect of financial inclusion over and above the income channel. This approach allows us to estimate the effects for the time-invariant variables, such as caste and religion
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
