Financial Access Levels vs. Poverty Measures in MENA Economies

Abstract

According to the World Bank Poverty Database, there are more than 1.2 billion people live under the poverty line all around the world. The poorest share of the population in any economy was receiving less than 6% of the GDP in the 1990s. Therefore, it is a fact that more than half of the world’s population lives on less than $2 a day. However, the poverty gap tends to decrease each year. Studies suggest that the income growth of the poorest population was greater than the average GDP growth in countries with well-developed financial systems (Beck, Demirguc-Kunt, and Levine, 2004). On the other hand, there are 4 billion people living without reaching any financial services. They live with no account at any financial services and they do not even have access to these services (Chibba, 2008c). An economy that has a population with no access to financial services would face a lack of investment in physical capital and this would harm the productivity of this economy. These problems would cause a loss of welfare in that economy (Honohan, 2006; Claessens, 2005). Despite several studies examine the link between financial development and poverty, the studies investigating the effect of the levels of financial access and poverty measures are rare in the literature. Hence, this study aims to fill this gap by examining the link between financial access levels from both commercial banks and other financial institutions separately and poverty measure in MENA economies. In so doing, this paper empirically examines the link between financial access and poverty measures, using the constructed indices by Yorulmaz (2018) as the proxy of financial access with a panel data for MENA economies using IV estimation model for the period 2004 to 2011. As the contribution to the literature, this study examines access indicators from other financial institutions such as microfinance institutions, cooperatives and post offices as the second proxy of financial access in the models to assess their links between poverty measures. The results suggest that broader access to financial services, from conventional banks to other financial institutions such as microfinance institutions, have significant associations with poverty measures.