FINANCIAL INCLUSION AND INCOME INEQUALITY: THE CONDITIONAL ROLE OF CONTROL OF CORRUPTION
FINANCIAL INCLUSION AND INCOME INEQUALITY: THE CONDITIONAL ROLE OF CONTROL OF CORRUPTION

Summary/Abstract: This study examines whether the effect of financial inclusion on income inequality depends on institutional quality. Specifically, it tests whether control of corruption moderates the relationship between financial inclusion and income inequality. Using panel data for 15 emerging Asian economies from 2008 to 2022 and applying the System Generalized Method of Moments estimator, the results show that financial inclusion has no significant direct effect on inequality. Its distributional effect, however, depends strongly on control of corruption. Financial inclusion reduces inequality only in countries with sufficiently strong institutions, with the effect emerging once the control of corruption index exceeds approximately 0.23. The analysis also identifies an inverted U-shaped relationship, whereby inequality begins to decline only after the financial inclusion index surpasses approximately 0.72. The findings indicate that institutional reform and effective control of corruption are essential for financial inclusion to reduce income inequality.

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