Does financial literacy improve financial inclusion? Cross country evidence

While financial inclusion is typically addressed by improving the financial infrastructure, we show that a higher degree of financial literacy also has a clear beneficial effect. We study this effect at the cross-country level, which allows us to consider institutional variation. Regarding “access t...

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Bibliographic Details
Published in:World development 2018-11, Vol.111, p.84-96
Main Authors: Grohmann, Antonia, Klühs, Theres, Menkhoff, Lukas
Format: Article
Language:English
Subjects:
Economic impact
Finance
Financial development
Financial inclusion
Financial institutions
Financial literacy
Financial services
Infrastructure
International comparisons
Literacy
Subgroups
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Summary:While financial inclusion is typically addressed by improving the financial infrastructure, we show that a higher degree of financial literacy also has a clear beneficial effect. We study this effect at the cross-country level, which allows us to consider institutional variation. Regarding “access to finance”, financial infrastructure and financial literacy are mainly substitutes. However, regarding the “use of financial services”, the effect of higher financial literacy strengthens the effect of more financial depth. The causal interpretation of these results is supported by IV-regressions. Moreover, the positive impact of financial literacy holds across income levels and several subgroups within countries.
ISSN:0305-750X
1873-5991
DOI:10.1016/j.worlddev.2018.06.020