Illuminating inequality: Heterogeneous effects of financial inclusion on urban-rural economic performance and economic resilience in Papua

Financial inclusion has been a pivotal juncture in shaping economic dynamics, influencing both economic performance and resilience. This study examines the spatial linkage between financial inclusion, economic performance, and economic resilience across 42 districts in Papua Island using the integration of remote sensing data and official statistics. Employing cross-sectional data in 2024, we construct two comprehensive indices for financial inclusion and economic resilience through principal component analysis. The Financial Inclusion Index, constructed from both traditional and digital financial dimensions, denotes significant spatial heterogeneity across Papua districts, with the availability of bank agencies and credit access in the village emerging as the most contributing components. We employ geographically weighted regression to examine the heterogeneous effects of financial inclusion, unemployment rate, and population on three distinctive dependent variables: (1) urban and (2) rural night-time light luminosity as proxies of economic performance and (3) economic resilience. We integrate VIIRS night-time light data with MODIS Land Cover data to classify urban and rural night-time light data in our model. Our spatial heterogeneity analysis shows the existence of pronounced spatial clustering effects, where financial inclusion exhibits the most substantially positive effect on economic performance in capital cities, such as Jayapura, but indicates a significant yet small effect in the central part and mountainous districts. In terms of population stock, a similar pattern applies to three respective models, showing that population shares the greatest magnitude on economic performance and resilience in high-economic-sized city (Jayapura city) and densely populated districts (Jayapura, Mimika, Yahukimo). The analysis of night-time light data exposes significant disparities of luminosity range between urban areas and rural regions, suggesting core differences in economic activity concentration. The findings emphasise the urge for spatially targeted policy interventions which prioritise expanding financial infrastructure development and credit access in high-impacted capital cities and addressing geographical barriers for financial services, both on access and literacy, in less-impacted mountainous districts.