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Research Article |

The Effects of Financial Inclusion on Poverty in Ethiopia: Micro Data Analysis

To investigate the effects of financial inclusion on poverty in Ethiopia, I used poverty as the dependent variable and financial inclusion index as the independent variable. Poverty includes various indicators of measuring multidimensional poverty, which consist of agricultural inputs (lack of access to DAP, urea, and irrigation), housing (poor-quality construction materials like floors, walls, toilets, absence of electricity, and phone), health and nutrition (absence of medical consultations and hospital visits), water and sanitation (lack of clean water and proximity to the household), and education (inability to read and write before the age of 16). Numerous studies have explored the utilization and accessibility of financial institutions in Ethiopia; however, poverty has received less attention. Therefore, I used data from the Ethiopian Socio-Economic Survey 2018–19 to conduct a comprehensive analysis of the impact of financial inclusivity on poverty in Ethiopia, and I also employed the Two-Stage Least Squares model (2SLS). In a linear regression framework, two-stage least squares has been used to handle models with endogenous explanatory variables. The study's explanatory variable has an endogeneity issue; thus, I used the nearest transportation cost's (in kilometers) distance as an instrumental variable to address this issue. According to the study's findings, households without access to agricultural inputs experience a 2.7% decrease in poverty. It also reduces poverty by 0.4% for households without access to health and nutrition services and by 3.2% for households that used lower-quality building materials to construct their dwellings. On the other side, financial inclusion has decreased poverty by 0.13% in households without access to good water and sanitation and 0.11% in households with children under the age of 16 who cannot read or write. Moreover, male-headed and urban households perform marginally better at reducing poverty than female-headed and rural households. I have concluded that financial inclusion has played a role in alleviating poverty in Ethiopia. I recommend that the National Bank of Ethiopia continue implementing the National Financial Inclusion Strategy of 2017, which aims to aggressively enhance the incorporation of individuals into the financial system. Furthermore, commercial banks should focus on expanding their branches, improving infrastructure, and conducting public awareness campaigns to sustain the progress of poverty alleviation.

Financial Inclusions, Poverty Indicators, Credit, Banks, Microfinance Institution

APA Style

Tadesse Milkano, T. (2023). The Effects of Financial Inclusion on Poverty in Ethiopia: Micro Data Analysis. International Journal of Health Economics and Policy, 8(4), 89-100. https://doi.org/10.11648/j.hep.20230804.12

ACS Style

Tadesse Milkano, T. The Effects of Financial Inclusion on Poverty in Ethiopia: Micro Data Analysis. Int. J. Health Econ. Policy 2023, 8(4), 89-100. doi: 10.11648/j.hep.20230804.12

AMA Style

Tadesse Milkano T. The Effects of Financial Inclusion on Poverty in Ethiopia: Micro Data Analysis. Int J Health Econ Policy. 2023;8(4):89-100. doi: 10.11648/j.hep.20230804.12

Copyright © 2023 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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