Does Private Sector Development Decrease Financial Inclusion? An Evidence In A Transitioning Country

Vu Duy Trung, Nguyen Dieu Hanh and Dao Le- Van ()
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Vu Duy Trung: Vietnam National University of Hanoi, International School
Nguyen Dieu Hanh: Vietnam National University of Hanoi, International School
Dao Le- Van: Vietnam National University of Hanoi, International School

A chapter in Proceedings of the International Conference on Emerging Challenges: Sustainable Strategies in the Data-Driven Economy (ICECH 2024), 2025, pp 152-170 from Springer

Abstract: Abstract This study presents evidence elucidating the complex relationship between private sector development (PSD) and the Financial Inclusion Index (FII) in a transitioning economy. Given that the private sector, a significant driver of growth in Vietnam, is expanding, the research investigates whether this trend benefits workers in terms of financial inclusion. Utilizing panel data from 63 provinces in Vietnam spanning from 2010 to 2020, our results indicate that while private sector expansion generally enhances financial access, the transition of workers from the public to the private sector can diminish FII. This interconnection is influenced by the local institutional quality, whereby an increase in private sector employment and labor share contributes more positively to FII in regions characterized by high-quality institutions and economic development. Therefore, our findings underscore the critical role of institutional reforms and targeted policies aimed at ensuring that private sector growth translates into improved financial inclusion, particularly for marginalized communities. Research Purpose: The purpose of this research is to explore whether the growth of the private sector in Vietnam has a positive or negative effect on financial inclusion—that is, whether it helps more people access essential financial services like banking, loans, and credit. The study looks at how expanding private sector employment might improve access to these services, but also whether the shift from public to private sector jobs could reduce financial inclusion in certain areas. Ultimately, this research aims to provide insights on how private sector growth impacts workers’ financial well-being in a transitioning economy like Vietnam. Research motivation: The motivation for this research arises from the growing role of the private sector in driving Vietnam’s economic development and the need to understand its impact on financial inclusion. While the private sector creates jobs and promotes growth, its effect on access to essential financial services—especially for underserved communities—remains unclear. This study aims to investigate whether private sector expansion improves or hinders financial inclusion, providing insights that can guide policies to ensure inclusive and equitable economic benefits. Research design, approach, and method: This research uses a panel data analysis across 63 provinces in Vietnam from 2010 to 2020 to explore the relationship between private sector growth and financial inclusion. We employ various indicators of private sector development and a Financial Inclusion Index to assess financial access. To ensure robust results, we apply statistical methods that account for potential biases and control for important factors such as institutional quality and regional differences. This approach allows us to uncover the nuanced effects of private sector expansion on financial inclusion in different contexts. Main findings: The main findings of this research reveal that private sector growth generally enhances financial inclusion by increasing access to essential financial services. However, the shift of workers from the public to the private sector can lead to a decline in financial inclusion, especially in regions with weaker institutional quality. Our study also shows that areas with better institutional frameworks benefit more from private sector expansion in terms of financial inclusion, while regions with higher poverty rates experience slower progress. Practical/managerial implications: The practical implications of this research suggest that policymakers should focus on strengthening institutional frameworks to ensure that private sector growth leads to broader financial inclusion. Improving governance, transparency, and financial infrastructure can help regions, especially those with higher poverty rates, to benefit more from private sector expansion. For managers and business leaders, the findings highlight the importance of engaging with local institutions and supporting initiatives that promote financial literacy and access to financial services, which can enhance both employee welfare and business performance in transitioning economies like Vietnam.

Keywords: Financial Inclusion; Private Sector Development; Institutional Quality; Transitioning Economy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-694-9_10

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DOI: 10.2991/978-94-6463-694-9_10

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