Identifying Constraints to Financial Inclusion and Their Impact on GDP and Inequality: A Structural Framework for Policy
IMF Working Papers, January 27, 2015
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Bibliographic details
- Authors: Era Dabla-Norris, Yan Ji, Robert M. Townsend, Filiz D Unsal
- Published: January 27, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498381598.001
Model and Methodology
- Develops a micro-founded general equilibrium model with heterogeneous agents to identify pertinent constraints to financial inclusion.
- Evaluates quantitatively the policy impacts of relaxing each constraint separately, and in combination, on GDP and inequality.
- Focuses on three dimensions of financial inclusion:
- Access (determined by the size of participation costs).
- Depth (determined by the size of collateral constraints resulting from limited commitment).
- Intermediation efficiency (determined by the size of interest rate spreads and default possibilities due to costly monitoring).
- Takes the model to firm-level data from the World Bank Enterprise Survey.
Data, Countries, and Scope
- Six countries at varying degrees of economic development:
- Three low-income countries: Uganda, Kenya, Mozambique.
- Three emerging market countries: Malaysia, the Philippines, and Egypt.
- Uses firm-level data from the World Bank Enterprise Survey.
Key Findings
- Alleviating different financial frictions has a differential impact across countries.
- Country-specific characteristics play a central role in determining the linkages and tradeoffs between inclusion, GDP, inequality, and the distribution of gains and losses.
Policy Implications and Evaluation
- Quantitative evaluation of policy impacts for relaxing:
- Participation cost constraints (access).
- Collateral constraints from limited commitment (depth).
- Intermediation inefficiencies related to interest rate spreads and costly monitoring (intermediation efficiency).
- Analyses imply tradeoffs between expanding financial inclusion and effects on GDP and inequality vary by country; policy design should account for country-specific characteristics.