EXPLORING THE LINK BETWEEN FINANCIAL INCLUSION AND FOOD SECURITY IN ALGERIA: A VECM Approach

Abstract

This study explores the link between financial inclusion and food security in Algeria from 2003 to 2022. Using a composite financial inclusion index and the Vector Error Correction Model (VECM), we analyse the data, subjecting it to various diagnostic tests. Surprisingly, our results reveal that financial inclusion (FI) has a significant and positive impact on undernourishment prevalence, indicating a negative effect on food security in both the short and long term. Likewise, food imports (FIM) contribute to higher undernourishment prevalence, implying a weakening of food security in the long-run. Conversely, unemployment rate (UEM) and food production (FOP) show no substantial long-term impact on food security, although UEM has an opposing effect in the short run, meaning it improves food security at the short term; which can be attributed to the informal economy and other State’s policies. Notably, income per capita (INCAPITA) negatively affects undernourishment prevalence, improving food security. These findings offer a nuanced understanding of the complex relationship between financial inclusion and food security in Algeria, emphasizing the need for multifaceted, context-specific policies to address the country's unique challenges.