Determinants of financial inclusion: does culture matter?

Figures & data

Figure 1. Formal financial services access/use between 2011 and 2017.Source: Global Findex, 2018.

Figure 2. Levels of social analysis.Source: Authors’ adaptation from Williamson (2000).

Table 1. Hypotheses relating to culture and account ownership

Hypothesis	Culture measure	Account ownership	Formal saving	Formal credit
1	Power distance	-	-	-
2	Individualism/Collectivism	+	+	+
3	Masculinity/Femininity	-	-	-
4	Uncertainty avoidance	-	-	-
5	Long/short term orientation	+	+	+
6	Indulgence/Restraint	+	+	+

Source: Author, 2019.

Table 2. Regions/countries covered

Region	N	Countries
East Asia & Pacific (EAP)*	6	China, Indonesia, Malaysia, Philippines, Thailand, Vietnam
Europe & Central Asia (ECA)*	17	Albania, Armenia, Azerbaijan, Belarus, Bosnia & Herzegovina, Bulgaria, Croatia, Georgia,
		Kazakhstan, Macedonia, Moldova, Montenegro, Romania, Russia, Serbia, Turkey, Ukraine
Latin America & Caribbean (LAC)*	9	Argentina, Bolivia, Brazil, Colombia, Dominican Republic, El Salvador, Mexico, Paraguay,
		Peru
Middle East & North Africa (MENA)*	8	Algeria, Egypt, Iran, Iraq, Jordan, Lebanon, Libya, Morocco
South Asia (SA)*	3	Bangladesh, India, Pakistan
Sub-Saharan Africa (SSA)*	7	Burkina Faso, Ghana, Mozambique, Nigeria, South Africa, Tanzania, Zambia
High Income (OECD)	28	Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland,
		France, Germany, Greece, Ireland, Italy, Japan, Latvia, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, United
		Kingdom, United States
High Income (Non OECD)	7	Hong Kong, Hungary, Lithuania, Malta, Saudi Arabia, Singapore, Uruguay
Total number of countries	85

*Excludes any high income countries in the respective regions. These countries are reported under the category High income (Non OECD).

Table 3. Variables, description, and data sources

Variable	Symbol	Description/Computation where applicable	Data source
A. Dependent variables
Account ownership	acc_own	% of persons aged 15 and over who own an account at a financial institution	Global Findex
Saved at a financial institution	sav_fi	% of persons aged 15 and over who saved any money in a financial institution in the past 12 months	Global Findex
Borrowed from a financial institution	brw_fi	% of persons aged 15 and over who borrowed any money from a financial institution in the past 12 months	Global Findex
B. Explanatory variables: Culture
Power distance	pdi	Composite index ranging from 0 to 100, higher score meaning more authoritarian and bureaucratic structures	Hofstede’s dimensions
Individualism/Collectivism	idv	Composite index ranging from 0 to 100, higher score meaning more individualistic societies	Hofstede’s dimensions
Uncertainty avoidance	ua	Composite index ranging from 0 to 100, higher score meaning a higher preference for certainty	Hofstede’s dimensions
Masculinity/Femininity	mas	Composite index ranging from 0 to 100, higher score meaning a more masculine society	Hofstede’s dimensions
Long term orientation	lto	Composite index ranging from 0 to 100, higher score meaning a more future-oriented society	Hofstede’s dimensions
Indulgence/Restraint	idg	Composite index ranging from 0 to 100, higher score meaning a freer or less socially restricted society	Hofstede’s dimensions
C. Control variables
I. Demographic controls
Gender	female	Dummy variable indicating gender of individual: male or female	Global Findex
Age	age	Age of individual	Global Findex
Education level	educ	Dummy variable indicating educational attainment of individual up to primary, secondary, and tertiary levels	Global Findex
Income level	inc	Dummy variable indicating income level of individual	Global Findex
Employment status	emp_stat	Dummy variable indicating whether or not an individual is employed	Global Findex
II. Macroeconomic
National wealth	gdppc	Gross domestic product per capita	World Development Indicators
Population density	pdens	% of people per square kilometre of land area	World Development Indicators
Financial sector development	pvtcgdp	Private credit to banks/GDP (%)	World Development Indicators
III. Formal institutions
Legal origin	legor	Dummy variable indicating the legal origin of a country (equal to 1 if a country’s legal origin is English Common Law)	Djankov et al. 2007
Property rights	propr	Composite index ranging from 0 to 100, higher score meaning a stronger property rights	Heritage Foundation
Creditor rights	credr	Index ranging from 0 (weak) to 4 (strong) aggregating the strength of creditor rights per country	Djankov et al. 2007

Variable used in this study are defined in this table. Their sources are also indicated.

Table 4. Summary statistics

Variable	Obs	Mean	Std. Dev.	Min	Max
Dependent variables
Account ownership	97,028	0.693	0.461	0	1
Saved at a financial institution	97,028	0.290	0.454	0	1
Borrowed from a financial institution	97,028	0.130	0.337	0	1
Culture measures: Hofstede
Power distance	97,028	66.307	20.181	11	104
Individualism/Collectivism	97,028	40.383	21.358	10	91
Masculinity/Femininity	97,028	49.443	17.610	5	110
Uncertainty avoidance	97,028	67.348	22.087	8	112
Long/short-term orientation	97,028	46.242	23.961	4	88
Indulgence/Restraint	97,028	41.236	21.436	0	97
Demographic controls
Female	97,028	0.501	0.500	0	1
Age	96,746	44.393	18.209	15	99
Education level: Primary	97,018	0.286	0.452	0	1
Education level: Secondary	97,018	0.519	0.500	0	1
Education level: Tertiary	97,018	0.189	0.391	0	1
Income level: Poorest 20%	97,028	0.170	0.376	0	1
Income level: Second poorest 20%	97,028	0.181	0.385	0	1
Income level: Middle 20%	97,028	0.195	0.396	0	1
Income level: Fourth 20%	97,028	0.211	0.408	0	1
Income level: Richest 20%	97,028	0.243	0.429	0	1
Employment status: employed	96,028	0.604	0.489	0	1
Macroeconomic controls
GDP per capita (Ln)	97,028	9.148	1.200	6.134	11.586
Population density (Ln)	97,028	4.441	1.361	1.163	8.977
Private credit by banks as % of GDP	97,028	67.280	43.740	9.162	223.391
Formal institution controls
Legal origin UK	97,028	0.228	0.420	0	1
Property rights	97,028	60.604	18.548	6.8	97.1
Creditor rights	97,028	1.962	0.951	0	4

In this table, summary statistics for the key variables used in this study are presented. The dependent variables include Formal account ownership, Formal savings, and Formal borrowing. All three dependent variables are binary with values of 0 or 1.

Table 5. Regional average scores for financial inclusion and culture variables

	Financial inclusion measures				Culture measures (Hofstede)
Region	Account ownership at a financial institution (% aged 15+)	Saved at a financial institution(% aged 15+)	Borrowed from a financial institution (% aged 15+)	Power distance	Individualism/Collectivism	Masculinity/Femininity	Uncertainty avoidance	Long/Short-term orientation	Indulgence/Restraint
EAP	59%	27%	14%	82	22	50	42	51	40
ECA	62%	15%	14%	84	27	45	88	65	26
LAC	45%	11%	12%	68	24	52	80	23	66
MENA	46%	12%	10%	75	36	51	68	17	26
SA	46%	12%	6%	71	27	54	57	49	15
SSA	37%	15%	7%	71	29	47	53	22	57
OECD	95%	53%	18%	45	65	50	65	53	52
NOECD	83%	36%	12%	63	44	51	66	55	40
Sample	59%	23%	12%	70	34	50	65	42	40

In this table, regional average scores for the dependent and main explanatory variables used in this study are presented. The dependent variables include Formal account ownership, Formal savings, and Formal borrowing. Data on these variables is obtained from the Global Findex 2017 database. Data on the main explanatory variables (Culture) is obtained from Hofstede’s culture dimensions.

Table 6. Effect of culture on financial inclusion

	(1)	(2)	(1)	(2)	(1)	(2)
Variables	acc_own	acc_own	sav_fi	sav_fi	brw_fi	brw_fi
Culture
pdi	−0.00167***	4.07e-05	−0.00192***	−0.000629***	−0.000278***	1.96e-05
	(0.000105)	(0.000106)	(9.90e-05)	(9.97e-05)	(8.25e-05)	(8.54e-05)
idv	0.00608***	0.00343***	0.00316***	0.00139***	0.000510***	−0.000413***
	(9.39e-05)	(0.000104)	(8.78e-05)	(9.68e-05)	(7.32e-05)	(8.31e-05)
mas	−0.00254***	−0.00269***	−0.000490***	−0.000461***	−0.000632***	−0.000319***
	(9.45e-05)	(9.67e-05)	(7.40e-05)	(7.47e-05)	(6.15e-05)	(6.45e-05)
ua	−0.000584***	−0.000682***	−0.00191***	−0.00155***	−5.45e-05	−0.000529***
	(6.36e-05)	(8.74e-05)	(6.00e-05)	(7.84e-05)	(5.07e-05)	(6.77e-05)
lto	0.00541***	0.00193***	0.00339***	0.00123***	0.000497***	−0.000288***
	(5.45e-05)	(6.83e-05)	(6.21e-05)	(7.56e-05)	(5.15e-05)	(6.30e-05)
idg	0.00355***	0.000853***	0.00298***	0.000908***	0.000712***	−0.000159**
	(6.91e-05)	(7.54e-05)	(7.67e-05)	(8.41e-05)	(6.20e-05)	(6.99e-05)
Demographic controls
female		−0.00985***		0.00195		0.00176
		(0.00243)		(0.00254)		(0.00213)
age		0.00230***		0.000648***		−0.000145**
		(7.14e-05)		(7.85e-05)		(6.86e-05)
educ_pri		0.0189		−0.00610		−0.00258
		(0.0150)		(0.0164)		(0.0153)
educ_sec		0.130***		0.0833***		0.0481***
		(0.0149)		(0.0163)		(0.0152)
educ_ter		0.258***		0.165***		0.0789***
		(0.0153)		(0.0164)		(0.0153)
inc_pr20		−0.135***		−0.184***		−0.0313***
		(0.00386)		(0.00422)		(0.00357)
inc_sp20		−0.110***		−0.138***		−0.0168***
		(0.00383)		(0.00396)		(0.00336)
inc_md20		−0.0790***		−0.0924***		−0.0117***
		(0.00380)		(0.00376)		(0.00321)
inc_fr20		−0.0532***		−0.0612***		−0.00824***
		(0.00375)		(0.00360)		(0.00307)
emp_stat		0.116***		0.0977***		0.0909***
		(0.00246)		(0.00280)		(0.00247)
Macroeconomic controls
lngdppc		0.0766***		0.0513***		0.0158***
		(0.00245)		(0.00247)		(0.00204)
lnpdens		0.00778***		0.00822***		−0.00731***
		(0.00135)		(0.00108)		(0.000920)
pvtcgdp		0.000757***		0.000440***		−0.000182***
		(4.83e-05)		(4.28e-05)		(3.69e-05)
Formal institutions
legor		0.0735***		0.0285***		−0.0175***
		(0.00375)		(0.00389)		(0.00326)
propr		0.000167		0.000707***		0.000966***
		(0.000123)		(0.000139)		(0.000116)
credr		0.0130***		0.00444***		0.00557***
		(0.00155)		(0.00148)		(0.00124)
Statistics Observations Pseudo R^2 Log likelihood Predicted probability	97,028 0.1803 –49,036.014 0.6935	95,736 0.3073 –40,761.04 0.6963	97,028 0.1288 –50,895.058 0.2898	95,736 0.2153 –45,349.701 0.2914	97,028 0.0093 –37,232.343 0.1305	95,736 0.0554 –35,118.088 0.1310

This table reports probit regression results, notably the marginal effects and standard errors for the effect of culture on financial inclusion. Hofstede’s dimensions (model 1) make up the culture measures here. Controls are made for client demographic characteristics, country macroeconomic setting, and formal institutional environment. ***, **, and * represent statistical significance at 1%, 5% and 10% levels respectively.

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