Financial inclusion in Turkey: unpacking the provincial inequality and its determinants

ABSTRACT

This paper investigates the regional disparity of financial inclusion (FI) and its determinants in Turkey from 2004 to 2020. To this end, we first construct an FI index using the principal component analysis. Then, based on the club convergence approach, we test the existence of convergence to show regional disparities in FI. Finally, we examine the main determinants of provincial disparity using ordered logit models. The convergence results strongly reject the full-panel convergence, indicating a regional disparity in FI. Furthermore, our analyses reveal that financial inclusion positively correlates with population, income, and income inequality, while unemployment hinders inclusion. Overall, our results imply that policies focusing on digital financial services, increasing financial literacy, and reducing unemployment should significantly diminish regional disparities and improve FI.

KEYWORDS:

• Financial inclusion
• principal component analysis
• club convergence
• Turkey

JEL CLASSIFICATION:

• C21
• C23
• G21
• O16
• O18

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ To consider the differences in the variance of these variables, we first normalize them by using the min-max normalization technique (Bozkurt, Karakuş, and Yildiz 2018; Seven, Yassa, and Yılmaz 2020).

² Ordered logit models are applied using the averaged values of the years between 2014 and 2019 to obtain more robust estimates.

³ For a more detailed report, please see Table A1 in the Appendix.