Economic uncertainty, financial inclusion, and income inequality in developing countries: Evidence from a dynamic panel threshold analysis

This study investigates how financial inclusion moderates the impact of economic uncertainty on income inequality in 58 developing countries from 2004 to 2022. Using an endogenous dynamic panel threshold model, the findings reveal a threshold effect: economic uncertainty reduces income inequality only when financial inclusion surpasses a certain level. Below this threshold, uncertainty worsens inequality. Financial inclusion reduces income inequality where the effect is pronounced after exceeding the threshold. These results underscore that the relationship between economic uncertainty and income inequality is conditional on financial inclusion. The study emphasizes that enhancing financial inclusion is essential for shielding vulnerable economies from the inequality-amplifying effects of uncertainty, and that this relationship holds under various income inequality, financial inclusion measures and estimation techniques.