Journal Article

Impact of financial inclusion on household welfare in Ethiopia

Hussen, Mohammed Seid, Mohamed, Mustafe Abdi

2023

Overview

Despite the overwhelming consensus on the positive effect of financial inclusion on economic outcomes, there is limited rigorous micro-econometric evidence on the causal impact of financial inclusion on household welfare in Ethiopia. This study uses the 2018 Ethiopian Socioeconomic Survey data and an endogenous switching regression model to investigate the determinants and the causal impact of financial inclusion on multiple measures of household welfare. The results suggest that households headed by older, more educated, wage or self-employed people in the non-agricultural sector are more likely to access financial services, as are those headed by non-Muslims. In addition, greater financial access appears to be associated with membership in a local social group ( iddir ), ownership of mobile phones, credit information, and knowledge of how to open bank accounts, but negatively associated with the distance from the household’s residence to the nearest formal financial institution. This study further indicates that financial inclusion has a positive and statistically significant impact on multiple household welfare indicators. The most considerable impact of access to formal financial institutions is on utility spending, followed by total expenditure, food expenditure, and education spending. These findings thus suggest that policies geared toward improving household access to formal financial institutions are essential to enhance household welfare in Ethiopia.

• Publisher: Springer Berlin Heidelberg,Springer Nature B.V,SpringerOpen
• Subject: Business and Management / Consumption / Economic growth / Economic opportunities / Education / ESR / Ethiopia / Expenditures / Financial inclusion / Financial institutions / Financial services / Generalized method of moments / Household welfare / Households / Income distribution / Low income groups / Microfinance / Poverty