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Abstract
This study investigates the impacts of fintech adoption, financial inclusion, and financial integration on income inequality in European countries. Utilising panel data from European nations and employing Generalised Method of Moments (GMM) regression models, we examine the relationships between these financial factors and income disparity levels. Our findings reveal that both fintech adoption and financial inclusion had strong positive effects on reducing income inequality. Further, financial integration in the European Union, measured by the adoption of the Euro currency in member countries, only had a modest, however significant effect of reducing income disparities. These results suggest that advancements in financial technology and improved access to financial services play substantial roles in mitigating income disparities across Europe. Consequently, financial policies that address income disparities across European Union should be more oriented at improving financial inclusion to the traditional financial system and create a better regulatory environment compatible with Fintech rather than simply promoting financial integration. The study contributes to the growing body of literature on the intersection of financial development and economic equality, offering important insights for policymakers aiming to address income inequality through financial sector initiatives.
Keywords: GINI index, Fintech, GMM regression, Fourth Industrial Revolution, Europe
JEL Classification: G15, G20, O30, D63
Introduction
The emergence of the Fourth Industrial Revolution (IR 4.0), marked by the incorporation of modern technologies including artificial intelligence, automation, and digitalisation, has initiated a new phase of socio-economic transformation (Caruso, 2018). This revolution is characterised by its unparalleled speed and its widespread influence across all sectors of the economy and society. The COVID-19 pandemic, despite its adverse impacts, has unintentionally expedited the adoption of digital technologies, acting as a catalyst for this disruptive shift (Soto-Acosta, 2020).
Financial inclusion, characterised by the monetary accessibility and affordability of formal financial services for all societal groups, has become a pivotal element in fostering sustainable and inclusive economic development (Ozili, 2021). The author believes that technological innovations associated with IR 4.0 could substantially improve financial inclusion by influencing income distribution patterns. This assertion is especially pertinent in the European context, where notable inequalities in financial inclusion and income endure despite the region's overall economic advancement. Nordic countries such as Sweden and Finland exhibit high financial inclusion, with over 95% of adults possessing a...