Access to drinking water and sanitation in developing countries: Does financial development matter?

The aim of this study is to examine the effect of financial development on access to safe water and sanitation. Using panel data from a sample of 106 developing countries over the period 2000-2019, empirical results based on two-step system generalised method of moments suggest that financial development improves access to drinking water and sanitation for the total population and for both urban and rural populations. In addition, financial development reduces the gap between urban and rural populations in terms of access to these two basic services. Further analysis also suggests that the financial market and financial institutions, as well as their sub-indices (financial depth, financial access, and financial efficiency), also improve access to water and sanitation. These results underscore the need for continued efforts to design and implement policies that promote financial development. In addition, given the greater impact of financial institutions, we suggest that reforms to improve the financial system should be more oriented towards the development of financial institutions.