Assessing the Welfare Impact of Financial Inclusion through Consumption Diversification in West Africa: A Parametric and Non-Parametric Approach

Sanoh Yusuf ()
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Sanoh Yusuf: Graduate School of Economics, The University of Osaka

No 26-10, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This study investigates the causal impact of financial inclusion on household welfare in West Africa by analyzing consumption diversification using Living Standards Measurement Study (LSMS) data from the World Bank on 51,851 households across seven countries of the West African Economic and Monetary Union (WAEMU). Instrumental Variables (IV) and Propensity Score Matching (PSM) were used for causal inference. The findings show that financial inclusion operates through distinct channels: it promotes food expenditure concentration via quality upgrading, expands non-food consumption into areas such as education and health, and induces structural reallocation from food to non-food budgets, with effects varying by financial modality. The results demonstrate that formal banking and microfinance drive long-term structural change. In contrast, mobile banking primarily facilitates short-term liquidity, offering targeted policy insights for enhancing financial inclusion strategies in the region.

Keywords: Financial Inclusion; Theil entropy; consumption diversification; welfare; West Africa. (search for similar items in EconPapers)
JEL-codes: D12 G21 I32 O16 O55 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2026-08
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