Measurement and spillover effect of digital financial inclusion: a cross-country analysis

ABSTRACT

Measures of national financial inclusion mostly focus on traditional financial services and ignore the role of digital finance. We incorporate several digital elements of financial inclusion and construct a comprehensive index of digital financial inclusion for 101 countries in 2017. The spatial distribution of the index shows a strong geographical aggregation and a clustered pattern in national income groups. Regions with higher-income countries tend to have better digital financial inclusion. However, digital technology has helped several low-income countries to improve their financial inclusion. But this improvement does not spillover to other low-income countries in the region.

KEYWORDS:

• Financial inclusion index
• digital financial inclusion
• Moran’s I
• regional aggregation

JEL CLASSIFICATION:

• G21
• O16
• O50

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ These four indicators have complete data for all 101 countries. They are very general and well represent the availability and usage of digital technology in financial services. Similar indicators are used in Sahay et al. (2020). Other digital indicators are less general or only have limited data.

² Sahay et al. (2020), only considering the availability and the usage dimensions, construct a digital financial inclusion index for 52 emerging and developing economies. Their dimensional index and aggregate index are both built by a principal component analysis. Our methodology is proved to yield an index satisfying a set of axioms, namely, monotonicity, anonymity, normalization, uniformity, shortfall sensitivity, and hiatus sensitivity to level (Mishra and Nathan 2014). Compared to their study, we cover more countries and more varieties of dimensions and indicators.

³ These six countries are Kenya, Zimbabwe, Mozambique, Ghana, Bhutan, and Zambia. Sahay et al. (2020), who only include emerging and developing economies, find greater progress in digital inclusion in these African countries as well. Confirming our conclusion that DFI does not have a strong spillover effect among African countries, they also report considerable variations in DFI within the region.

⁴ The World Bank updates its Global Findex data triennially. Therefore, 2017 is the only year that complete data of these digital indicators are available when this paper is written.