BRIDGING GAPS: THE ROLE OF FINTECH AND INSTITUTIONAL QUALITY CORRUPTION IN REDUCING INCOME INEQUALITY

Abstract

An interesting topic is Income Inequality (IIQ), that means the uneven allocation of income within a particular population. IIQ is a barrier to economic growth and social unity for many years. It is influenced by institutional quality corruption (IQC), FinTech or technological advancements and many other economic variables. Corruption generally makes governance weaker, promotes rent-seeking behaviors and unfairly allocates resources to a small group. Conversely, FinTech plays the role reducing IIQ by incorporating financial inclusion in each country. Despite global strides in reducing poverty, IIQ continues to exist especially in emerging markets with IQC and uneven access distribution of technology. Inspecting the issue of IIQ remains vital for achieving long-term and inclusive growth, requiring research that investigates these nuanced relationships. Thus, this study aims to examine how IQC and Fintech influence IIQ. The research aims to identify possible solutions to reduce IIQ by understanding the relationships of FinTech and IQC. FinTech's rapid global explosion and its role in connecting financial gaps have motivated this inquiry. Instantaneously, IQC’s inescapable impacts on distribution of resources emphasize the need for systematic institutional restructurings. The study is inspired by the empirical evidence and theoretical proofs, recommending that addressing these issues will result into equal economic opportunities for all and promote social unity. The research employs advanced panel data techniques, including cross-sectional dependence analysis, heterogeneity testing, and cointegration methods. Tests such as the CS-ARDL and NARDL models analyze long-run and short-run dynamics, while causality tests explore directional relationships. Leveraging data across multiple countries, highlighting regional gaps and the interconnectedness between Fintech adoption, IQC, and IIQ. The findings are reliable because of Robustness checks, addressing data stationarity and cross-country interdependencies. Results show that FinTech largely decreases IIQ by promoting financial inclusion in all areas, including remote and rural areas. However, the reach of Fintech’s benefits to all income groups, depends on each country’s digital infrastructure, financial and digital knowledge, and how strong a country’s governance is. On the other hand, IQC exacerbates IIQ by hindering equitable allocation of resources and by keeping little or no opportunities for general people. While FinTech is generally known to be influencing IIQ in a positive way, but overreliance or unequal adoption of FinTech worsens IIQ. Presence of corruption in institutional quality (IQ), reduces social flexibility and public investment effectiveness. Other authors’ findings align with the present study’s findings, all highlighting the need for inclusive and well-adjusted technological adoption and systematic institutional reforms. This study expands the understanding of how institutional factors such as good governance, rule of law, institutional quality, corruption and adoption of FinTech influences IIQ, offering nuanced insights into their interplay. It extends existing literature by combining theoretical frameworks and empirical analyses, highlighting regional and economic-specific dynamics. The suggestions of this study expresses the need of connecting FinTech innovations with strong governance to ensure equitable outcomes, contributing to policy discourses on sustainable development and economic inclusion. According to the findings of this research, policymakers and government should focus on extending Fintech’s reach while bridging digital literacy, infrastructure and financial literacy disparities. Furthermore, incorporating anti-corruption policies, such as increasing transparency and institutional capacity-building, must be included, especially in developing countries in order to decrease IIQ. Cooperative efforts, including public-private partnerships, can increase FinTech's potential and address systemic governance issues. Future policies should integrate these strategies to foster inclusive growth and lessen disparities.