The Role of Information Sharing in Modulating the Effect of Financial Access on Inequality

ABSTRACT

This study examines the role of information sharing in modulating the effect of financial access on income inequality in 48 African countries for the period 2004–2014. Information sharing is proxied with private credit bureaus and public credit registries. All dynamics of financial development are taken into account, namely: depth (money supply and liquid liabilities), efficiency (at banking and financial system levels), activity (from banking and financial system perspective) and size. The empirical exercise is based on interactive Generalised Method of Moments. It can be established from the findings that: first, a threshold of 18.072 percentage coverage of public credit registries is needed to counteract the unconditional positive effect of banking system efficiency. Secondly, on the role of private credit bureaus in financial depth, both the unconditional and the conditional effects are negative, implying a negative synergy. Overall, the findings show that, contingent on the type of financial development dynamic, credit registries broadly play their theoretical role of decreasing financing constraints in order to ultimately reduce inequality.

KEYWORDS:

• Inequality
• information asymmetry
• financial development
• Africa

Disclosure statement

No potential conflict of interest was reported by the author.

Ethical approval

This article does not contain any studies with human participants or animals performed by any of the authors.

Notes

¹ Interested readers can find a detailed analysis in AfDB (2013): https://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/Financial_Inclusion_in_Africa.pdf.

² ‘First, the null hypothesis of the second-order Arellano and Bond autocorrelation test (AR(2)) in difference for the absence of autocorrelation in the residuals should not be rejected. Second the Sargan and Hansen over-identification restrictions (OIR) tests should not be significant because their null hypotheses are the positions that instruments are valid or not correlated with the error terms. In essence, while the Sargan OIR test is not robust but not weakened by instruments, the Hansen OIR is robust but weakened by instruments. In order to restrict identification or limit the proliferation of instruments, we have ensured that instruments are lower than the number of cross-sections in most specifications. Third, the Difference in Hansen Test (DHT) for exogeneity of instruments is also employed to assess the validity of results from the Hansen OIR test. Fourth, a Fischer test for the joint validity of estimated coefficients is also provided’ (Asongu & De Moor, 2017, p. 200).

³ The unit root tests are based on Im-Pesaran-Shin and Fisher types because the Breitung and Levin-Lin and Chu tests require a strongly balanced dataset.

⁴ For lack of space, the computations are available upon request.

Additional information

Funding

This study was not funded.