The impact of financial inclusion on rural–urban households welfare inequality in Ghana: A decomposition analysis

Thompson Ogajah Tawiah, Daniel Sakyi, Raphael Edem Ayibor and Kofi Amanor

Review of Development Economics, 2025, vol. 29, issue 2, 1058-1079

Abstract: This article examined the impact of financial inclusion on rural–urban households' welfare inequality in Ghana using nationally representative survey data sourced from the seventh round of the Ghana Living Standard Survey. The article used a multidimensional financial exclusion index and the real per adult equivalent measures of total annual household consumption expenditure as measures of financial inclusion and welfare, respectively. The article employed the instrumental variable estimation technique to account for the issues of endogeneity and sample selectivity bias associated with measuring financial inclusion. The estimated results from recentered influenced function‐Ordinary Least Squares of the unconditional quantile regression and the Oaxaca‐Blinder techniques show significant rural–urban welfare gaps in favor of urban households at the mean and across the selected quantiles. The study also found that differences in financial inclusion between rural and urban households contribute significantly to the welfare gaps, while the economic returns to financial inclusion reduce the welfare gaps both at the mean and the selected quantiles. The study recommends that policies aimed at improving financial inclusion as well as strengthening financial institutions in rural areas be put in place to help reduce the rural–urban welfare inequality in Ghana.

Date: 2025
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