Effects of financial inclusion on poverty reduction and income inequality in Botswana

Abstract

The study examines the effect of financial inclusion on poverty reduction and income inequality in Botswana using quarterly time series data for the period 2004-2017. The Autoregressive Distributed Lag (ARDL) model is used to establish the effect of financial inclusion on poverty reduction and income inequality. The ARDL approach integrates both the short-run relationship and long-run relationship. The results showed that financial inclusion significantly reduces poverty and income inequality, both in the short run and in the long run. Moreover, other socio-economic variables, per capita income, education, population growth, and age dependency ratio have a negative relationship with poverty rates, suggesting that an increase in these variables would promote a reduction in poverty rates in Botswana. Similarly, the age dependency ratio and per capita have a negative effect on income inequality in the long run. These results suggest that, policies that promote financial inclusiveness are imperative for reducing the high rates of poverty and income inequality in Botswana.