Implications of Financial Inclusion on Welfare in Nigeria: A K-Mode Analysis and Semi-parametric Regression

Abstract This study examines the role of financial inclusion on the welfare of Nigerian households. While the importance of financial inclusion in improving welfare has long been stressed, the multidimensional effects on poverty, food insecurity, dietary diversity, and assets remain partially acknowledged. We use panel data from the World Bank’s Living Standard Measurement Survey, covering four waves. As against existing studies, we employ an innovative K-mode clustering technique suitable for categorical data to identify subgroups of financial inclusion among households. Furthermore, a control function semi-parametric regression enabled us to estimate the relationship between these clusters (as well as individual financial services) and four outcomes. Results showed that a comprehensive financial inclusion is associated with better poverty, dietary diversity, and asset outcomes. Consequently, we recommend that governments continue to take advantage of the potential benefits of access to financial services by reducing inequality in access to financial services for female-headed households while strengthening other products (for instance, credit) via literacy and related educational programs. JEL: G21, I32, D14, O55, E21, R20, J16