Financial inclusion during pandemic shocks: Moderation factors and agenda for policy makers

By Vo Thi Minh Tuyet (VNP 26)

Supervisor: Dr. Le Van Chon

Abstract:

This study first aims to gauge the causal impact of the pandemic on financial inclusion by using a wide range of textual base indexes and pandemic event studies. We then examine the number of moderating factors that may aggravate or mitigate the adverse effect of infectious diseases on financial inclusion. Using the dataset of 38 countries from 2000 to 2020, we report novel evidence that financial inclusion declined considerably in response to the pandemic outbreak. Noticeably, an increase in one percentage of pandemic shock can lead to a 0.15% decrease in financial inclusion. Regarding the moderation effects, we first obtain evidence that policy uncertainty can widen the detrimental effect of the pandemic on financial inclusion. Secondly, we found that the country with good bank performance and the lessening of lending constraints will have more chances to reduce the unfavorable impact of infectious disease on their inclusiveness of financial services. Besides, the element of the government’s pandemic policy responses of mandatory vaccine policy and ODA investment in healthcare services significantly reduces the pandemic outbreak's adverse effect. Lastly, although we confirm the significant mitigation effects of efficiency in debt restructuring toward the pandemic disease, the sensitivity analysis result does not satisfy the primary condition of counterfactual comparison. This result is sad but important because we can fairly reject any future study if they apply the simple interaction effects of efficiency in debt restructuring and the pandemic without considering the nature of the “staggered adaption” and “rollout design” of the pandemic event.