Financial inclusion's impact on energy poverty: Evidence from Indonesia

Abstract

This study tests the association between financial inclusion and energy poverty in Indonesia. It adopts multi-dimensional energy poverty and financial inclusion measures employing the 2018 Statistics Indonesia data. The energy poverty measures cover six indicators, i.e., the primary cooking fuel, indoor air pollution, lighting, ownership of household appliances, and supporting essential services such as education, entertainment, and communication. On the other hand, the financial inclusion variable involves household access to banks, credit, and insurance. In testing the financial inclusion-energy poverty association, the present study performs the Two-Stage Least Square (2SLS) method, involving household distance to the nearest financial facilities as an instrument variable (IV) to overcome the potential endogeneity problem from the reverse causality between the financial inclusion and energy poverty. This analysis reports a robust negative and significant association between financial inclusion and energy poverty, bringing potential critical notes for Indonesia's policy formulation against energy poverty.

Keywords

• F6
• Q49
• R2