The Role of Financial Inclusion and Remittance Inflow in Poverty Reduction in South Asia

ABSTRACT The United Nations' primary sustainable development goal is to end all forms of poverty globally, and thus, reducing poverty has emerged as a key objective for national development across countries. Taking this into account, this study aims to explore the influences of financial inclusion and remittance inflow on poverty reduction in selected South Asian countries, considering per capita income as a control variable. To complete the investigation, we utilize the second‐generation unit root assessment, the Driscoll–Kray (D‐K) robust standard error estimation method, and the “Dumitrescu–Hurlin” (D‐H) causality experiment that supports cross‐sectional dependency. The D‐K estimations reveal that financial inclusion has an impact on lowering the poverty gap as well as the headcount of poverty. At the same time, remittance inflow exerts a significant effect on poverty reduction regardless of the headcount, gap, or severity, and increasing per capita income has been a major factor in mitigating poverty in South Asia. The findings have significant policy ramifications. To combat poverty and promote inclusive development, policymakers should integrate financial inclusion, remittance inflow, and per capita income, increase access to appropriate and reasonably priced financial services, fortify remittance corridors, and advance financial literacy among people.