Financial Development and Income Inequality in Indonesia: A Sub-national Level Analysis

Harry Aginta, Debby A. Soraya and Wahyu B. Santoso
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Harry Aginta: Bank Indonesia
Debby A. Soraya: Bank Indonesia
Wahyu B. Santoso: Bank Indonesia

Economics and Finance in Indonesia, 2018, vol. 64, 111-130

Abstract: This study constructs financial inclusion indicator and analyzes the link of financial inclusion and income inequality for 33 provinces in Indonesia. By using Fixed Effect Panel Model, we find financial inclusion appears to have insignificant effect to on inequality at national level. While at sub-national level, adding other variables such as GRDP, years of schooling, and trade openness, we find financial inclusion appears to have negative and significant impact on income inequality in manufacture and mining-based provinces, not in agriculture-based. The results suggest that financial inclusion helps to lower income inequality when economic condition encourage people to utilize financial access for productive purposes.

Keywords: financial development; income inequality; Fixed Effect Panel Model (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:lpe:efijnl:201807

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