Financial inclusion, economic growth, and poverty alleviation: evidence from eastern Indonesia

Abstract

The need for a good understanding of the relationship between financial inclusion and economic growth has become a significant concern in national development. Both sectors play an essential role in formulating income distribution policies and reducing poverty, evidence from Eastern Indonesia. This paper, therefore, empirically analyzes the contribution of the financial inclusion to economic growth, poverty alleviation and income inequality in Eastern Indonesia. The Toda-Yamamoto VAR bivariate causality model and the dynamic Panel Vector Autoregression (PVAR) were the two approaches used in this research. The effect and relationship of financial inclusion on economic growth, poverty, inequality and other factors were analyzed using PVAR, and Toda-Yamamoto VAR bivariate causality model, respectively. The results of the bivariate causality model indicate a high relationship level between financial inclusion, economic growth, poverty, and income distribution in Eastern Indonesia. The socio-economic growth has a positive impact on the level of financial inclusion, with a negative impact on poverty. Meanwhile, financial inclusion has a positive effect on inequality, which leads to widespread income inequality in Eastern Indonesia.