Financial Inclusion and Economic Growth as Pathways to Poverty Reduction: Evidence from OECD Countries

Financial Inclusion (FI) and Economic Growth (EG) are widely documented as crucial elements in Poverty (POV) alleviation; however, evidence on their linkages with POV remains scant in advanced economies. This study examines the linkages among FI, EG, and POV across 36 OECD countries from 2008 to 2019. The study aims to assess the short-run and long-run relationships among these factors and determine the direction of causality. Panel data for the principal variables were obtained from the World Bank’s World Development Indicators (WDI). Panel cointegration analysis and the Mean Group (MG) estimator were employed to determine the existence of long-run equilibrium relationships and to estimate long-run and short-run linkages. Further, a Granger causality test was conducted to analyze the possible causal relations among variables. The results confirm a long-run negative relationship among FI, EG, and POV across countries. The results indicate that FI and EG negatively affect POV in the long run, whereas the short-run evidence is not convincing. In the short run, only one FI indicator is significantly associated with poverty, while the other remains insignificant. The Granger causality results show that FI, EG, and POV have two-way relationships. These findings suggest that policies aimed at expanding access to and use of formal financial services, alongside practices that promote economic progress, can contribute to poverty reduction. This study contributes to the empirical literature by examining the associations between FI, EG and POV alleviation in the OECD nations over time.