Measurement Methods for Relative Index of Financial Inclusion

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Abstract
Improved measurement methods for relative index of financial inclusion (IFI) based on Euclidean distance and Mahalanobis distance (hereinafter referred to as Ed-R-IFI and Md-R-IFI) are proposed. The levels of financial inclusion of 55 countries in 2004 are evaluated by using the traditional and improved measurement methods for the IFI. The results indicate that, owing to consideration of the existence of correlations among the various dimensions, the Md-R-IFI method reduces the overall level of financial inclusion and keeps the IFI within a small range of fluctuation compared with the traditional measurement method and the Ed-R-IFI method. The results are more in line with the actual IFIs in various countries, and the method has better applicability and practicality in the measurement of the IFI.
Funding Information
  • Chinese Scholarship Council (2013077220042)
  • Peking University (7101502221)