Exploring Differences in Financial Literacy Across Countries: The Role of Individual Characteristics and Institutions

We explore microdata from the OECD/INFE survey on financial literacy of adult individuals. We find considerable differences in financial literacy across countries and decompose them into a part explainable by varying individual characteristics and a remainder. We show that individual characteristics matter with regard to differences in average financial literacy, but do not fully explain the gaps. We decompose financial literacy across its distribution and directly relate it to different policies. We then correlate the unexplained differences to institutional macroeconomic variables. We find strong correlations between unexplained differences and life expectancy, social contributions rate, PISA math scores, and internet usage, suggesting room for harmonization of environments across countries to close the financial literacy gap.

     

Does Financial Inclusion Diminish Poverty and Inequality? A Panel Data Analysis for Latin American Countries

Despite great developmental efforts in recent decades, Latin America still presents high levels of poverty and inequality when compared to developed nations. As explored widely in the literature, one potential instrument to diminish these issues is financial inclusion, including the access and usage of financial services by all people. Specifically, this paper verifies if financial inclusion and technology adoption decrease the poverty headcount ratio and the Gini index (i.e., inequality) of 13 Latin America countries (Argentina, Bolivia, Brazil, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, Panama, Paraguay, Peru, and Uruguay). To perform such analysis, an unbalanced panel dataset was built, and the Feasible Generalized Least Squares (FGLS) and the Limited Information Maximum Likelihood (LIML) techniques were employed. The results suggest that, in accordance with previous studies, financial inclusion is a powerful tool to tackle poverty and inequality. Additionally, the combined effects of financial inclusions and technology (i.e., mobile use) are also capable of decreasing the poverty and inequality levels. We discuss the policy implications of our findings and suggest a future research agenda.

     

Effect of Financial Inclusion on Poverty and Vulnerability to Poverty: Evidence Using a Multidimensional Measure of Financial Inclusion

This study examines the effect of financial inclusion on poverty and vulnerability to poverty of Ghanaian households. Using data extracted from the seventh round of the Ghana Living Standards Survey in 2016/17, a multiple correspondence analysis is employed to generate a financial inclusion index, and three-stage feasible least squares is used to estimate households’ vulnerability to poverty. Endogeneity associated with financial inclusion is resolved using distance to the nearest bank as an instrument in an instrumental variables probit technique. Results showed that while 23.4% of Ghanaians are considered poor, about 51% are vulnerable to poverty. We found that an increase in financial inclusion has two effects on household poverty. First, it is associated with a decline in a household’s likelihood of being poor by 27%. Second, it prevents a household’s exposure to future poverty by 28%. Female-headed households have a greater chance of experiencing a larger reduction in poverty and vulnerability to poverty through enhanced financial inclusion than do male-headed households. Furthermore, financial inclusion reduces poverty and vulnerability to poverty more in rural than in urban areas. Governments are encouraged to design or enhance policies that provide an enabling environment for the private sector to innovate and expand financial services to more distant places. Government investment in, and regulation of, the mobile money industry will be a necessary step to enhancing financial inclusion in developing countries.

     

Conceptualizing and Measuring Financial Resilience: A Multidimensional Framework

Financial inclusion has become a policy priority. For many countries, this has meant focusing on the delivery and practical aspects of financial products and services. This paper argues that this approach is not sufficient to improve financial wellbeing more broadly. It suggests a more comprehensive approach moving away from asking whether people are excluded or not to asking whether they have access to accessible, acceptable and appropriate resources and supports in adverse financial circumstances. A better understanding of individuals’ financial resilience: how they bounce back from adverse financial events and the resources and supports they draw on; could help determine where resources can and should be invested to assist people to cope with financial adversity, assist the development of effective policy and, ultimately, improve financial wellbeing. This paper puts forward a definition of financial resilience and a methodology for measuring it. Australia is used as a case country from which to draw conclusions using a survey of 1496 representative adults (18+). The findings indicate that over 2 million Australian adults experienced severe or high levels of financial vulnerability raising very real concerns about financial wellbeing. Implications for academics and policy makers are presented.

     

Space,Context, and Human Capital: A Micro–Macro Perspective on the Social Environment and Financial Literacy in Later Life

Despite a large body of literature documenting the association between individual characteristics and financial literacy, our understanding of the impact of macro-environmental conditions on individual financial literacy remains limited, particularly in later life. Drawing from a micro–macro perspective on the social environment and individual processes, we examined the extent to which three state-level contextual characteristics were associated with individual financial literacy: tertiary educational attainment, poverty prevalence, and Internet penetration. We utilized data from the Understanding America Study for adults aged 50 years or older to assess financial literacy and data from the American Community Survey to evaluate contextual conditions. Cross-sectional multilevel regression models were used to examine the hypothesized effects. We found that state-level poverty prevalence was negatively associated with individual financial literacy, while state-level Internet penetration was positively associated with individual financial literacy, over and above individual characteristics known to impact financial literacy. No association was found between state-level educational attainment and individual financial literacy after controlling for respondents’ own education. Findings suggest that the social environment may condition older adults’ financial literacy through exposure to opportunities that promote knowledge acquisition. Interventions to enhance older adults’ financial literacy may benefit from targeted approaches that take into account the environmental characteristics of their locations of residence.

     

Dynamics of HDI Index: Temporal Dependence Based on D-vine Copulas Model for Three-Way Data

The HDI (Human Development Index) is a widely used index based on the average of measures of health, education, and income. It assesses the progress of countries worldwide. The publicly available data set associated with the HDI can be seen as a table with 3 dimensions (three-way table): countries, indexes regarding progress, and years (from 2010 to 2018). Thus, modeling the serial dependence structure of this type of intricate three-way tables is a challenge. D-vine copulas are a special class of multivariate copulas that are particularly suited for modeling serial dependence. This work aims to assess the evolution of the dependence relationship between the indexes of the HDI data set over time through D-vine copulas, which has not been fully used before in the area, as far as we are concerned. We tested our approach to European and African countries and compare their results.

     

Composite Indicator of Social Inclusion for European Countries

Social inclusion is one of the key challenges of the European Union (EU) Sustainable Development Strategy. We use four indicators from EU policies to measure social inclusion for the 27 member countries of Europe. In particular, we aggregate the four indicators in a multiplicative composite indicator via a DEA-BoD approach with weights determined endogenously with proportion constraints. We obtain a score of social inclusion that allows us to grade the 27 EU countries from 2006 to 2010. In this way, we highlight the specific role played by the four indicators in determining improvements and deteriorations of social inclusion during the European phase of the financial and economic crisis.     

The Influence of Social Models on Retirement Savings: Evidence for European Countries

Population ageing, together with the negative effects of the recent economic and financial crisis that some European countries are still facing, have threatened the sustainability of public pension systems. In this context, voluntary private pensions have emerged as the most feasible alternative to supplement the minimum provided by Social Security Systems; however, this financial product does not enjoy its expected popularity. A potential explanation of this reality might be due to the fact that European countries are far from being homogeneous, nor their pensions systems. Therefore, any policy geared toward improving financial retirement planning should take into account these potential differences. As a first approach to their analysis, this paper proposes the existence of four different ‘social models’ in Europe -namely, Continental, Mediterranean, Nordic and Transitional-. Overall, empirical evidence confirmed the significant influence of country’ ‘social model’ on the decision to invest in retirement accounts on a sample of 31,468 individuals in 2013. It was also proved that this decision is positively related to age, household income and wealth, higher levels of formal education, job situation, good health status, and long-term planning horizons; and negatively related to age squared, household size or financial risk aversion. In short, future policies and reforms regarding private pensions should not only take into account the existence of individual differences among Europeans, but also the existence of differences depending on institutional and cultural country factors.     

What Does Really Drive Consumer Confidence?

We construct a novel index of households’ macroeconomic environment (HOME) based on the data from 22 high-income European countries between 2002 Q1 and 2018 Q4. The resulting index is in line with the broad features of the countries’ business and financial cycles and captures well households’ perception of their underlying economic situation. We discuss joint properties of the HOME index and the widely employed survey-based consumer confidence indicator. We show that households’ expectations are tightly linked to current macroeconomic conditions. This finding echoes the literature linking consumer attitudes and actual economic developments. The HOME index also reflects the importance of asset prices and lending conditions for households’ behavior. In a single-country case study, we provide empirical evidence that links the proposed index to new credit extended to households. The evidence suggests that households need a longer period of good macroeconomic conditions to decide to take on a mortgage than they do in the case of a consumer loan.

     

Do coresidency and financial transfers from the children reduce the need for elderly parents to works in developing countries?

Do elderly parents use coresidence with or financial transfers from children to reduce their own labour supply in old age? This paper is one of only a few studies that seeks to formally model elderly labour supply in the context of a developing country while taking into account coresidency with and financial transfers from children. We find little evidence that support from children—either through transfers or coresidency—substitutes for elderly parents’ need to work. Thus, as in developed countries, there is a role for public policy to enhance the welfare of the elderly population.     

A Cross-National Analysis of Lifespan Inequality, 1950–2015: Examining the Distribution of Mortality Within Countries

Cross-national health research devotes considerable attention to lifespan and survival rate disparities that are found between countries. However, the distribution of mortality across the world is shaped mostly by what happens within countries. We address this striking gap in the literature by modeling length-of-life inequality for individual nation-states. We use life tables from the United Nation’s (2015) World Population Prospects to estimate inequality levels for 200 countries across 13 waves between 1950 and 2015. We find that lifespan inequality is steadily declining across the world, but that each country’s level of inequality, and the rate at which it declines, vary considerably. Our models account for more than 90% of the longitudinal and cross-sectional variation in country-level lifespan inequality during the 1990–2015 period. Maternal mortality is the strongest predictor in our model, while disease prevalence, access to safe water, and health interventions figure prominently, as well. Gross domestic product per capita shows the expected curvilinear association with lifespan inequality, while primary education (both overall enrollment and gender equity in enrollment), external debt, and migration also play critical roles in shaping health outcomes. By contrast, the distribution of political and economic resources (i.e., democracy and income inequality) is less important.

     

Inequality in Human Development: An Empirical Assessment of 32 Countries

One of the most frequent critiques of the HDI is that is does not take into account inequality within countries in its three dimensions. In this paper, we apply a simply approach to compute the three components and the overall HDI for quintiles of the income distribution. This allows a comparison of the level in human development of the poor with the level of the non-poor within countries, but also across countries. This is an application of the method presented in Grimm et al. (World Development 36(12):2527–2546, 2008) to a sample of 21 low and middle income countries and 11 industrialized countries. In particular the inclusion of the industrialized countries, which were not included in the previous work, implies to deal with a number of additional challenges, which we outline in this paper. Our results show that inequality in human development within countries is high, both in developed and industrialized countries. In fact, the HDI of the lowest quintiles in industrialized countries is often below the HDI of the richest quintile in many middle income countries. We also find, however, a strong overall negative correlation between the level of human development and inequality in human development.     

The gender wage gap and wage arrears in Russia: Evidence from the RLMS

This paper re-examines the gender wage gap in Russia between 1994 and 1998 taking into account the pervasiveness of Russias non-payment institutions. Using censored regression techniques we investigate wage discrimination at different sections of the income distribution and for various important sub-groups. We find that the wage gap is distributed unevenly. Most notably, women at the lower end of the income distribution suffer the highest degree of discrimination. However, we find that wage arrears and payment in-kind attenuated wage discrimination, particularly amongst the lowest paid workers, suggesting that Russian enterprise managers assigned importance to equity considerations when allocating these forms of non-payment.All correspondence to Carmen A Li. We are grateful for the helpful comments and suggestions of Vanessa Fry, Amanda Gosling, Tim Hatton, Alastair McAuley and two anonymous referees. The usual disclaimer applies. Responsible editor: Junsen Zhang.     

Persistence of the Misery Index in African Countries

This paper deals with the analysis of the misery index in a group of 55 African countries by using fractional integration or I(d) techniques. In doing so, we can measure the degree of persistence of the index in a more flexible way than with other methods that simply use integer degrees of differentiation (zero or one). Our results indicate a large degree of heterogeneity across the countries, with some showing short memory behaviour (d?=?0); others long memory mean reverting behaviour (0?<?d?<?1) and others indicating the presence of unit roots (d?=?1). Thus, shocks will have different effects depending on the country examined. Generally, we also find a positive relationship between the levels of persistence and income.

     

Welfare State Development in Latin America and the Caribbean (1970s–2000s): Multidimensional Welfare Index,Its Methodology and Results

There is an ongoing debate between focalization and universalization on welfare policies as the best way to develop the welfare state in Latin America and the Caribbean. However, there is a need to develop a measure that exhibits the multidimensional nature of the welfare state, instead of focusing on the social spending dimension. Segura-Ubiergo (The political economy of the welfare state in Latin America: globalization, democracy and development. Cambridge University Press, New York, 2007) constructed a welfare effort index (WEI) to facilitate understand the relative degrees of welfare state development among Latin American countries. The WEI focuses mainly on social spending and ignores the other dimensions of welfare. Based on a comparative analysis of 17 Latin American countries and following the methodology of Segura-Ubiergo, a new index that aims at enriching the WEI was constructed. The new index is multidimensional in that it has eight indicators relating to three dimensions of welfare: social spending, coverage of welfare programs and outcome of welfare institutions. Principal component analysis was used for reducing the indicators into three indexes that represent three proposed dimensions of welfare. The combination of these three indexes gives the multidimensional welfare index. The results of the index account for more than 75 % of the data variance.     

The Contribution of R&D Expenditure to Economic Growth in Developing Economies

This paper examines the role of R&D spending on economic growth of developing economies between the periods of 2000 and 2009. The impact of R&D spending on these economies is determined by using dynamic system GMM, pooled mean group and three stage least square-GMM models. Sixty-six countries are studied and further grouped as; upper-middle-income economies and lower middle-income economies. The result reveals a beneficial impact of R&D spending on economic growth in developing countries. The effect of R&D spending on growth is positive for upper middle-income economies while insignificant in lower income economies. R&D spending has different short and long run effects on growth. Using simultaneous equation models to account for simultaneity and endogeneity, R&D spending remains beneficial to growth and the results remain consistent with the dynamic system estimator.

     

Analysing International Student Mobility Flows in Higher Education: A Comparative Study on European Countries

The analysis of the factors pulling and pushing students in a foreign country to complete their higher education is key for the implementation of university policies aimed at increasing the number of credits gained by students abroad and hence the degree of internationalisation of institutions. Consistent with previous studies, the present contribution examines the roles played by countries in the Erasmus student mobility flows by considering a joint strategy of analysis based on social network analysis and exploratory data analysis. First, data on Erasmus student exchanges among countries are gathered at macro-level from the European Union Open Data Portal and network data structures are analysed. Second, educational indicators from the Eurostat website are collected to describe the investments in higher education. The main findings suggest the presence of a core-periphery configuration in the student mobility network with few central countries in which the economic benefits and the investments in education seem to act as key elements for university attractiveness.

     

The Importance of Variables in Composite Indices: A Contribution to the Methodology and Application to Development Indices

The paper examines the issue of weights and importance in composite indices of development. Building a composite index involves several steps, one of them being the weighting of variables. The nominal weight assigned to a variable often differs from the degree to which the variable affects the scores of the overall index. The newly suggested notion of importance is based on the idea that an important indicator, if omitted from the index, causes large changes in countries’ results. We propose a method of measuring the importance and apply it to inequality variables in composite indices of development. The results show a low importance for most inequality variables, and for some of them, a large discrepancy between the nominal weights and the importance. We argue that the importance of variables should be considered in the process of index construction. This may imply a modification of the index when there is a large discrepancy between the nominal weights and importance and when the importance of some variables is extremely low. Whether any such modification is justified must be decided within the context of the particular index.

     

Data Gap Analysis,Indicator Selection and Index Development: A Case for Developing Economies

Sustainable Development Goals (SDG) and its measurement is a key policy focus across the globe. Despite existence of several indices and reporting agencies, it is a challenging task to identify progress, specifically in the case of developing economies. These economies are predominantly in Asia and Africa and have a great bearing on global performance. These countries have diverse geographical and cultural elements with an active sub-national institutional framework. Data gap coupled with poor data quality and limited financial support does not help their case. Without appropriate indicator selection and index measurement it is not possible to judge the actual current situation or compare the SDG situation around the world. This paper attempts a practical and simpler approach to overcome the constraints, provide direction and facilitate measurement of SDG position in such countries using the case of India. This is done by identifying gaps, suggesting a tailored approach to indicator selection and measurement and further, developing a suitable index for SDG measurement at the sub-national level. The results and findings should be of great interest for policy making and implementing agencies.

     

A trichotomic segmentation approach for estimating composite indicators

Composite indicators (CIs) are commonly used for benchmarking of countries over the years, summarizing in a single measurement, complex social, economic, environmental etc. concepts by involving several thematically related sub-indicators. When estimating  CIs and for a few specific countries, it is possible to have a strong indication and belief about their performance, prior to obtaining their scores. Based on that, a number of countries are likely to occupy the top-ranking positions; some will remain at the bottom list, while others may range in intermediate places. This initial preference information imposes a trichotomic segmentation that divides the countries under assessment into categories of superior, inferior and of ambiguous future performance. In this paper, we introduce the trichotomic segmentation as initial preference information to estimate the values of the CIs. We build on the popular Benefit of the Doubt (BoD) method with common weights and develop a two-goal linear programming model, that next to the evaluation of the common weights for the sub-indicators, estimates cut-off points for the CI values that distinguish the superior and inferior countries. The proposed model maintains the advantages of the common variable weighting and produces scores that induce better discrimination of the countries, having also a significant correlation with the original CI scores. The proposed methodology is applied to reassess the Digital Economy and the Society Index.