Financial Inclusion, Agricultural Productivity and Income Inequality in Sub-Saharan Africa

Abstract

The steady decline of agricultural productivity and rising income inequality in Sub-Saharan Africa has been an issue of great concern to researchers, policymakers and governments. Incessant increase in inequality of income hampers socioeconomic development in developing countries, retards their economic growth and causes socioeconomic crises. Financial inclusion by providing financial services to the rural population and farmers, in particular, is considered a means of promoting agricultural productivity, which can boost the earning capacity of rural farmers, thereby reducing income inequality. However, little research has examined how an inclusive financial system drives agricultural productivity thereby reducing income inequality in Sub-Saharan Africa. The study utilized the panel-corrected standard error estimator to analyze secondary data spanning from 2001 to 2018, encompassing 44 Sub-Saharan African countries. This study employed principal component analysis to create a composite index for financial inclusion and revealed that financial inclusiveness increases agricultural productivity and reduces income inequality in Sub-Saharan African countries. Notably, the study also found that agricultural productivity significantly reduces income inequality in Sub-Saharan Africa. Moreover, the study aimed to investigate how agricultural productivity functions as a moderating factor in the relationship between financial inclusion and income inequality. The study discovered that agricultural productivity indeed exerts a moderating influence on the relationship between financial inclusion and income inequality. The Study recommends a solid, time-bound focused strategy on enhancing financial literacy in rural and remote areas and taking essential activities to address particular institutional bottlenecks and financial system inadequacies to build a more inclusive financial system. Keywords: Agriculture, Financial inclusion, Sub-Saharan Africa, Income Inequality