Abstract
This paper examines the direct effect of FinCredit on income inequality and the moderating effect of Financial Inclusion. Using a dual-process variable selection approach, we develop an optimal model to test two hypotheses and explore how FinCredit influences direct and indirect income inequality. Our study has made a pioneering contribution to the literature by identifying the direct positive impact of FinCredit on income inequality, which previous research had not yet revealed. Additionally, we have discovered new evidence on the crucial role of Financial Inclusion in enhancing the positive effects of FinCredit on reducing income inequality. We provide reliable scientific empirical evidence that clarifies the confusion surrounding fintech credit and encourages its development. Practical managerial implications can be inferred from the moderating role of financial inclusion on the positive effect of fintech credit on income inequality. These results have significant policy implications for promoting FinCredit and Financial Inclusion to reduce income inequality in the era of digital transformation.
Similar content being viewed by others
References
Appiah-Otoo I, Song N (2021) The impact of fintech on poverty reduction: evidence from China. Sustainability 13(9):5225
Aslan G et al (2017) Inequality in financial inclusion and income inequality. International Monetary Fund
Asongu A, Nwachukwu JC (2018) Comparative human development thresholds for absolute and relative pro-poor mobile banking in developing countries. Inform Technol People 31(1):63–83
Asongu SA, Odhiambo NM (2019) Mobile banking usage, quality of growth, inequality and poverty in developing countries. Inform Dev 35(2):303–318
Banerjee AV, Newman AF (1993) Occupational choice and the process of development. J Polit Econ 101(2):274–298
Beck T (2020) Fintech and financial inclusion: opportunities and pitfalls. ADBI working paper series
Chinoda T, Mashamba T (2021) Fintech, financial inclusion and income inequality nexus in Africa. Cogent Econ Financ 9(1):1986926
Claessens S et al (2018) Fintech credit markets around the world: size, drivers and policy issues. BIS Q Rev Sept
Cornelli G et al (2020) Fintech and big tech credit: a new database
Cox I, Gaudard M (2013) Discovering partial least squares with JMP. SAS Institute, Cary
de Haan J, Sturm J-E (2016) How development and liberalisation of the financial sector is related to income inequality: some new evidence. BAFFI CAREFIN Cent Res Pap (2016-33)
Demirgüç-Kunt A et al (2017) Asli Demirgüç-Kunt the global findex database
Demirguc-Kunt A et al (2018) The global Findex Database 2017: measuring financial inclusion and the fintech revolution. World Bank Publications
Demirgüç-Kunt A et al (2022) The global Findex Database 2021: financial inclusion, digital payments, and resilience in the age of COVID-19. World Bank Publications
Demirgüç-Kunt A et al (2020) The global findex database 2017: measuring financial inclusion and opportunities to expand access to and use of financial services. World Bank Econ Rev 34(Supplement1):S2–S8
Dimova R, Adebowale O (2018) Does access to formal finance matter for welfare and inequality? Micro level evidence from Nigeria. J Dev Stud 54(9):1534–1550
Dotti V (2020) Income inequality, size of government, and tax progressivity: a positive theory. Eur Econ Rev 121:103327
Erlando A et al (2020) Financial inclusion, economic growth, and poverty alleviation: evidence from eastern Indonesia. Heliyon 6(10):e05235
Fan J, Lv J (2008) Sure independence screening for ultrahigh dimensional feature space. J R Stat Soc Ser B (Stat Methodol) 70(5):849–911
Fan J, Lv J (2010) A selective overview of variable selection in high dimensional feature space. Stat Sin 20:101–148
Galor O, Zeira J (1993) Income distribution and macroeconomics. Rev Econ Stud 60(1):35–52
Guyon I, Elisseeff A (2003) An introduction to variable and feature selection. J Mach Learn Res 3(Mar):1157–1182
Guzi M, Kahanec M (2019) .Income inequality and the size of government: a causal analysis. Available at SSRN 3318771
De Haan J, Sturm J-E (2017) Finance and income inequality: a review and new evidence. Eur J Polit Econ 50:171–195
Hermes N (2014) Does microfinance affect income inequality? Appl Econ 46(9):1021–1034
Hodula M (2023) Fintech credit, big tech credit and income inequality. Financ Res Lett 51:103387
Honohan P (2008) Cross-country variation in household access to financial services. J Bank Financ 32(11):2493–2500
Huang C et al (2019) Feature selection method based on partial least squares and analysis of traditional Chinese medicine data. Comput Math Methods Med 2019
Jauch S, Watzka S (2016) Financial development and income inequality: a panel data approach. Empir Econ 51:291–314
Jović A et al (2015) A review of feature selection methods with applications. In: 2015 38th international convention on information and communication technology, electronics and microelectronics, MIPRO, IEEE
Kim J-H (2016) A study on the effect of financial inclusion on the relationship between income inequality and economic growth. Emerg Mark Financ Trade 52(2):498–512
Kochar A (2011) The distributive consequences of social banking: a microempirical analysis of the Indian experience. Econ Dev Cult Change 59(2):251–280
Lacalle-Calderon M et al (2019) Microfinance and income inequality: new macrolevel evidence. Rev Dev Econ 23(2):860–876
Mangal A, Holm EA (2018) A comparative study of feature selection methods for stress hotspot classification in materials. Integr Mater Manuf Innov 7:87–95
Mitchell TM (1997) Does machine learning really work? AI Mag 18(3):11–11
Mookerjee R, Kalipioni P (2010) Availability of financial services and income inequality: the evidence from many countries. Emerg Markts Rev 11(4):404–408
Mulaudzi R, Ajoodha R (2021) Improving the performance of multivariate forecasting models through feature engineering: a South African unemployment rate forecasting case study. In: Interdisciplinary research in technology and management. CRC Press, pp 420–425
Neaime S, Gaysset I (2018) Financial inclusion and stability in MENA: evidence from poverty and inequality. Financ Res Lett 24:230–237
Ngo FT et al (2018) Traditional regression methods versus the utility of machine learning techniques in forecasting inmate Misconduct in the United States: an exploration of the prospects of the techniques. Int J Crim Justice Sci 13:2
Ozili PK (2018) Impact of digital finance on financial inclusion and stability. Borsa Istanbul Rev 18(4):329–340
Park C-Y, Mercado R Jr (2018) Financial inclusion, poverty, and income inequality. Singap Econc Rev 63(01):185–206
Pes B (2017) Feature selection for high-dimensional data: the issue of stability. In: 2017 IEEE 26th international conference on enabling technologies: infrastructure for collaborative enterprises (WETICE), IEEE
Polson N et al. (2021) Deep learning partial least squares. https://arxiv.org/abs/2106.14085
Reinartz W et al (2009) An empirical comparison of the efficacy of covariance-based and variance-based SEM. Int J Res Mark 26(4):332–344
Sahay MR et al (2015) Financial inclusion: Can it meet multiple macroeconomic goals? International Monetary Fund
Sawadogo R, Semedo G (2021) Financial inclusion, income inequality, and institutions in sub-saharan Africa: identifying cross-country inequality regimes. Int Econ 167:15–28
Turegano DM, Herrero AG (2018) Financial inclusion, rather than size, is the key to tackling income inequality. Singap Econ Rev 63(01):167–184
Von Fintel D, Orthofer A (2020) Wealth inequality and financial inclusion: evidence from South African tax and survey records. Econ Model 91:568–578
Valdebenito A, Pino G (2022) Local financial access and income inequality in Chile. Econ Lett 210:110170
WB (2013) Global financial development report 2014: financial inclusion. World Bank Publications
Wold H (1975) Soft modelling by latent variables: the non-linear iterative partial least squares (NIPALS) approach. J Appl Probab 12(S1):117–142
Wold S et al (1984) The collinearity problem in linear regression. The partial least squares (PLS) approach to generalized inverses. SIAM J Sci Stat Comput 5(3):735–743
Zhang Q, Posso A (2019) Thinking inside the box: a closer look at financial inclusion and household income. J Dev Stud 55(7):1616–1631
Acknowledgements
This study was funded by the University of Economics and Law, Vietnam National University, Ho Chi Minh City, Vietnam.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher’s Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Pham, X.T.T., Luu, T.B. Effect of FinCredit on income inequality: the moderating role of financial inclusion. Rev Quant Finan Acc 62, 953–969 (2024). https://doi.org/10.1007/s11156-023-01226-4
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11156-023-01226-4