The Effect of Financial Inclusion on Household Welfare in China

Mallick, Debdulal and Zhang, Quanda (2019): The Effect of Financial Inclusion on Household Welfare in China.

Abstract

Financial inclusion is one of the key factors contributing to household welfare. We explore this effect in China utilizing a unique household survey panel data. Financial inclusion is measured by owning a transaction account at formal financial institutions. We employ an innovative method of heteroscedasticity-based identification recently developed by Klein and Vella (2009a; 2010) to identify the causal effect of financial inclusion. We find that welfare effects of financial inclusion varied across urban and rural areas and income groups. Financial inclusion significantly increased overall consumption, but the impact was greater among urban than rural households. The effect was stronger in the case of food consumption. Financial inclusion also decreased consumption inequality but only among urban households. The uneven effect of financial inclusion across level of urbanization and commodity types have important policy implications for promoting financial inclusion not only in China but also in other developing countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial inclusion; Consumption; Inequality; Welfare
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I31 - General Welfare, Well-Being

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