How Do Market Competition and Financial Technology Develop Financial Inclusion in West Java? A Spatial Econometric and Google Trend Analysis

Abstract

Financial inclusion refers to the provision of feasible and effective financial services to all social levels at an affordable cost. Using the combination of secondary data and Google Trend Report over the period 2019-2023 across districts in West Java, Financial Inclusion Index is constructed based on 3 (three) dimensions; coverage, business implementation; service quality and decomposed into 9 indicators. The effect of market competition, financial technology, and government intervention on the development of inclusive finance were empirically examined. The heterogeneous performance of market competition, financial technology, and government intervention in different market conditions were also thoroughly discussed. The results show that both market competition and financial technology can enhance the development of financial inclusion across districts in West Java. However, the role of market competition has a stronger impact than that of financial technology. Using Geographically Weighted Regression, it is confirmed the effects of the driving factors are largely heterogeneous across space and time. The heterogeneity test also shows that the level of financial inclusion is more pronounced in the regions with higher levels of market competition and financial technology development, and in the northern and western part of West Java Province, where the economy is relatively more emerging. Finally, we encourage that the roles of market and government intervention should be applied according to local conditions and the development of the financial digitalization needs to be continuously promoted.