Financial Inclusion and Household Welfare: An Entropy-Based Consumption Diversification Approach

Manisha Chakrabarty () and Subhankar Mukherjee ()
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Manisha Chakrabarty: Indian Institute of Management Calcutta
Subhankar Mukherjee: Indian Institute of Technology Kanpur

The European Journal of Development Research, 2022, vol. 34, issue 3, No 13, 1486-1521

Abstract: 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.

Keywords: Financial inclusion; Consumption diversification; Theil’s entropy; Hausman-Taylor estimation; PMJDY; D04; D14; D15; E21; I38 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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DOI: 10.1057/s41287-021-00431-y

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