Will financial inclusion reduce poverty in China : an empirical study on Chinese family panel data

Abstract

This paper investigated the influences of financial inclusion in China as well as the channel(s) that play the most important role in alleviating the family poverty incidence. Existing studies have shown that improvements in financial inclusiveness are positively correlated with economic and income growth (Levine et al, 2000) and it was discovered that financial development reduces income inequality and is highly associated with poverty reduction (Beck et al 2007). Credit was discovered to be the channel that has the most impact on poverty and income growth, raising income of credit-constrained households (Feder et al, 1990) and reducing working poverty in developing countries (Coulibaly and Yogo, 2018). Other channels such as private savings, consumption, expenditure and investments may also affect poverty levels and income growth (Ang, 2008; Chinn and Ito, 2007). For our research, data was taken from CFPS and IDF and the model was then built using Ordinary Least Squares, with binary variables of household poverty as the explained variable and financial inclusion index as the main explanatory variable. We discovered that financial inclusion has a significantly negative impact on family poverty incidence. In addition, it was also found that credit and money market funds are the main channels to alleviate the poverty rates, suggesting policy makers to focus on these two channels for raising income and reducing poverty.