The Impact of Climate Resilience and Financial Inclusion Interaction on Poverty in Africa’s Most Unbanked Nations

Abstract

Purpose: The purpose of this paper is to investigate the impact of climate resilience and adaptation capacity, financial inclusion, and their interaction on poverty in Africa’s most unbanked nations. Design/methodology/approach: The study makes use of panel regressions such as DOLS and FMOLS. using panel data econometric techniques. Secondary data covering Africa’s most unbanked nations from 2004 to 2022 were obtained from the World Bank, Global Findex Database, and climate disaster records. Panel Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimators were employed to account for endogeneity, serial correlation, and long-run cointegration among variables. Findings: The findings indicate that weak climate resilience and limited adaptation capacity significantly increase poverty vulnerability, while financial inclusion reduces poverty. Importantly, the interaction between climate resilient and financial inclusion is negative and statistically significant, suggesting that financial inclusion mitigates the poverty-increasing effects of climate shocks. Other core drivers of poverty include GDP per capita growth, inflation, and money supply. The coefficients of the variables of interest (i.e. financial inclusion, climate resilience, and their interaction) show consistency in terms of size, signs, and significance, suggesting robustness in the results. Practical implications: The results underscore the importance of inclusive financial systems as a climate adaptation and poverty reduction strategy in Africa. Thus, Africa’s governments and relevant authorities are advised to fight and control climate change to ensure effective poverty reduction impact of financial inclusion. This will guarantee that intended groups receive the benefits of financial inclusion, leading to poverty reduction. Originality/Value: The study combines climate change and financial inclusion in a novel context (Africa’s unbanked nations) using advance econometric techniques (DOLS/FMOLS) to address endogeneity and cointegration.