Financial inclusion and armed conflict: can innovation play a role in post-conflict reconstruction?

The objective of the present research is to analyze the relationship between financial inclusion and armed conflict. This has been done in order to gain a better understanding of the link between financial inclusion and conflict as well as the role of financial inclusion in post-conflict reconstruction. The research was conducted applying a panel data fixed effects regression model to assess the impact of armed conflict on different measures of financial inclusion. Four indicators are used to proxy financial inclusion. Since its peak in 1992, civil conflict has seen a steady decline, therefore the analysis must account for the time period starting in 1990. Given the lack of data on most financial inclusion indicators prior to 2004, this analysis makes use of the IMF Financial Institutions Access Index (FIA) to examine the impact of conflict on financial inclusion for the period between 1990 and 2017, based on imputed data. In addition, fixed effect regression models are also conducted for the time period of 2004-2018. Indicators proxying financial inclusion are – Bank Branches per 100,000 adults, ATM per 100,000 adults and Deposit Accounts per 1000 adults. Results indicate that financial conflict is significantly and adversely affected by conflict, however significance differs between the different indicators of financial inclusion. Bank Branches per 100,000 adults show significant results which are robust to controlling for socio-economic and institutional factors. Including a lag in the model finds no significant evidence for an impact. Against the background of the current rise in literature on innovation and financial inclusion, a small discussion evaluates the role of digital financial innovations in the context of conflict.