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The Effect of Financial Inclusion on Household Welfare in China

Debdulal Mallick and Quanda Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: Financial inclusion is one of the key factors contributing to household welfare. We explore this effect in China utilizing a unique household survey panel data. Financial inclusion is measured by owning a transaction account at formal financial institutions. We employ an innovative method of heteroscedasticity-based identification recently developed by Klein and Vella (2009a; 2010) to identify the causal effect of financial inclusion. We find that welfare effects of financial inclusion varied across urban and rural areas and income groups. Financial inclusion significantly increased overall consumption, but the impact was greater among urban than rural households. The effect was stronger in the case of food consumption. Financial inclusion also decreased consumption inequality but only among urban households. The uneven effect of financial inclusion across level of urbanization and commodity types have important policy implications for promoting financial inclusion not only in China but also in other developing countries.

Keywords: Financial inclusion; Consumption; Inequality; Welfare (search for similar items in EconPapers)
JEL-codes: D12 D14 G21 I31 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-cna, nep-fdg, nep-fle and nep-tra
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