Unveiling the effect of income inequality on safe drinking water, sanitation and hygiene (WASH): Does financial inclusion matter?

Abstract

Access to safe drinking water, sanitation, and hygiene (WASH) is crucial for disease prevention and improving general health outcomes. However, a significant number of people across the globe still lack access to safe drinking water and practice open defecation. Therefore, evidence-based research is needed to guide policymakers in improving WASH adoption and practice across the globe. In this study, we add to knowledge and policy by probing the role of income inequality and financial inclusion on access to improved WASH facilities using a comprehensive panel dataset from 119 countries between 2004 and 2020. We used the heteroskedasticity-based instrumental variable regression and the Driscoll-Kraay estimator to account for endogeneity and cross-sectional dependency inherent in panel data, respectively. Our preferred endogeneity and cross-sectional dependency-corrected results show that income inequality reduces access to safe WASH facilities. Our study demonstrates that financial inclusion significantly increases access to safe WASH facilities. Income inequality and financial inclusion have heterogeneous effects on access to safe WASH facilities across rural and urban settings, income groups, and geographical regions. Through our interaction and marginal effect analysis, we document that improvement in financial inclusion reduces the adverse effect of income inequality on safe WASH adoption and practices. These findings highlight that policies that strengthen financial inclusion services and further address income inequality would improve WASH adoption and practices. Considering the inhibiting and enhancing effects of income inequality and financial inclusion, respectively, governments could adopt social welfare policies to tackle the former and also put in measures to enhance financial development and inclusion to enhance the latter.