THE RELATIONSHIP BETWEEN FINANCIAL INCLUSION AND INCOME INEQUALITY; EVIDENCE FROM TURKEY

Abstract

The purpose of this study is to assess the impact of financial inclusion on income inequality in Turkey using the VAR approach from 2010 to 2021. The principal component anaysis technique is employed to create our own indicator representing financial inclusion, which contains the number of POS devices, the number of bank accounts, and the number of ATMs. The findings indicate that there is a reverse link between financial inclusion and income inequality. In other words, financial inclusion associated with more equitable distribution of income in Turkey. Furthermore, the Granger causality test is used to establish the direction of causality between variables. It has been observed that financial inclusion granger causes lower income inequality. However, gini index, which measures income inequality does not granger causes financial inclusion. As a results, a unidirectional causality is found from financial inclusion to income inequality in Turkey.