A Simultaneous Model of Youth Entrepreneurship and Financial Inclusion Across Developing Countries

For youth in developing countries, financial inclusion can play a key role in their decision to become an entrepreneur. At the same time, entrepreneurship can also affect their ability to access financial services. This paper uses data from the United Nation's International Labour Organization to investigate the dual relationship between entrepreneurship and financial inclusion for working youth from 21 developing countries. Simultaneous bivariate probit models were estimated for all working youth and then separately for the most vulnerable populations by urban-rural status, gender and age. Ignoring potential interdependence can lead to misleading conclusions about the actual relationship between financial inclusion and entrepreneurship and over- or understate the true impacts of each. The results from this study indicate that dual causality exists, but the direction of causation is likely to be from financial inclusion to entrepreneurship and not from entrepreneurship to financial inclusion. Rural working youth and the youngest working youth were found to be particularly vulnerable and the most likely to be affected by changes in financial inclusion. Overall, these results have important implications for international policy and national strategies designed to help improve youth entrepreneurship in the developing world via the expansion of financial services to populations traditionally excluded from the financial markets