The impact of financial inclusion and income inequality on human capital in developing countries

Nademi, Younes; Dalvandi, Maasoumeh; Dalvandi, Sima

doi:10.22126/pse.2024.10320.1102

The impact of financial inclusion and income inequality on human capital in developing countries

Document Type : Original Article

Authors

¹ Department of Economics, Faculty of Humanities, Ayatollah Boroujerdi University, Boroujerd, Iran

² Doctoral student of Monetary Economics of Isfahan University

³ Master of Accounting, Chamran University of Ahvaz, Iran

10.22126/pse.2024.10320.1102

Abstract

Most of developing countries face low levels of human capital. Human capital through training and improving skills and knowledge can be considered as one of the key strategies in the development of developing countries. A well-functioning financial system is necessary to reduce the risks associated with loss of income and thus strengthen human capital, increase opportunities and income distribution mechanisms, and reduce poverty. Therefore, financial inclusion plays an important role in strengthening human capital. Financial inclusion is considered as a vital factor of human development and economic growth by facilitating the access and use of financial services for all people in an economy. In addition, access to and use of financial facilities may allow individuals to deal with risk factors by investing in education and reduce the burden of financial problems, thereby having a positive impact on human capital. Considering this issue, the present study examines the effect of financial inclusion and income inequality on human capital in 52 developing countries during the period of 2005-2021 and using the generalized panel moments method. The results show that the financial inclusion index has a U-shaped non-linear effect on human capital at the significance level of ten percent. In other words, at low levels of financial inclusion, this variable cannot lead to the strengthening of human capital, but at high levels and crossing the threshold of this variable, it can lead to the strengthening of human capital. Other results show that income inequality and transfer payments have a negative and significant effect, and economic growth and consumer purchasing power have a positive and significant effect on human capital.

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