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The Composition of Financial Inclusion in ASEAN and East Asia: A New Hybrid Index and Some Stylised Facts

ASEAN, East Asia, Finance, Financial Inclusion

The Composition of Financial Inclusion in ASEAN and East Asia:  A New Hybrid Index and Some Stylised Facts

The paper provides an overview of the existing measures of financial inclusion and critically evaluates the two widely used existing methodologies to measure the dimensions – the principal component analysis (PCA) method and the Distance method, respectively. We subsequently propose a new hybrid financial inclusion index, which draws on the strengths of existing measures. We propose four key stylised facts by critically evaluating three dimensions of financial inclusion – access, usage, and quality in 22 Asian countries in the period 2004-2015. Utilising PCA scores, we identify the top two indicators under each dimension and by country, which are directly relevant for policy perspectives. An important finding is that the top five and the bottom five countries are the same under all three methodologies. There is a pattern across countries in adopting usage, access, and quality dimensions of financial inclusion over time. We also find that the top two indicators appear to play a significant role across all developing countries in the sample.

The Composition of Financial Inclusion in ASEAN and East Asia:  A New Hybrid Index and Some Stylised Facts

Date

24 September 2020

Category

ASEAN , Finance and Macroeconomy

Author

Rajabrata Banerjee, Ronald Donato

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