FINANCIAL INCLUSION AND INCOME INEQUALITY IN WAEMU: THE ROLE OF INSTITUTIONAL QUALITY

Abstract

The aim of this study is to examine the role of institutional quality in the relationship between financial inclusion and income inequality. The study covers the 8 WAEMU countries over the period 2006-2022. Methodologically, we use traditional conditional mean methods such as FMOLS and DOLS to analyze the long-term relationship between the variables. The results indicate that, in the long term, financial inclusion reduces income inequality. This effect is accentuated when government efficiency is taken into account. Heterogeneity is examined using moment quantile regression (MMQR). The results show that the reducing effect of financial inclusion and of the interaction between financial inclusion and government effectiveness becomes stronger at higher quantiles. The same finding applies to the coefficients of the urbanization variable. The exacerbating effect of the interest rate on loans diminishes in the upper quatiles. In terms of implications, measures aimed at reinforcing financial inclusion policies, and particularly digital inclusion, are desirable. In order to ensure that financial inclusion has a perenial effect in reducing income inequalities, the quality of institutions (government effectiveness) is required.

Keywords: Financial inclusion, Institutions, Income inequality, UEMOA.