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In this episode of Lehigh University’s College of Business iLUminate podcast, we are speaking with Todd Watkins about his recent research on how access to financial services affects the risk of death from COVID-19 globally.

Watkins is a professor of economics and has served as executive director of the Martindale Center for the Study of Private Enterprise at Lehigh since 2015. Author of more than 75 related publications, his research and teaching focus on the intersection of innovation, entrepreneurship, public policy, and financial tools for sustainable development.

Watkins spoke with Jack Croft, host of the ilLUminate podcast. Listen to the podcast here and subscribe and download Lehigh Business on Apple Podcasts or wherever you get your podcasts.

Below is an edited excerpt from that conversation. Read the complete podcast transcript [PDF].

Read the study by Watkins and five co-authors from Lehigh’s Data for Impact fellowship program: The impact of access to financial services on mitigating COVID-19 mortality globally.

Jack Croft: Talk a little about the financial services tools that you looked at in the study. There were those that are called formal and also alternative or informal. So could you define each of those and give us some examples of what those would include?

Todd Watkins: Formal banking services are generally what we think of as traditional banking. You have bank accounts, savings accounts, you get loans from a bank, you might use a credit card, and so on. So those would be in the broad definition of formal financial services, maybe more traditional financial services.

But people use a wide array of other financial tools, if you will, of accessing finance in different ways than going through banks and insurance companies. You might get a loan from your uncle or your mom, right? Friends and family as informal financial tools are an important characteristic in much of the developing world and among poor communities. They rely on informal financial services in a lot more ways.

Another informal technique is, hey, if you get sick and you need to go to the doctor, you're going to sell your cow or you're going to sell off some financial asset or some household asset that you might own. It's called distress financing. So that would be an informal approach to dealing with some sort of shock or some sort of need.

Alternative services that are emerging are pretty important in the developing world, primarily in the area of digital and mobile money. Mobile money, just as an example, in Kenya, a large fraction of people in Kenya use cell phones. 80 or 90% of the population has them, and every cell phone in the country comes packaged with a mobile money app right on it. You don't need a bank account. You don't need anything except a mobile phone to use this stuff. And then you can send money around the country, and it's way cheaper for people to do that than use a bank or to go to an ATM. So access to mobile money services is one of these emerging alternatives that are much more common, weirdly, in places like Kenya than they are even in the United States.

Croft: Getting to the main finding in your study, and I'll quote, it was, "Greater pre-pandemic national levels of use and access to formal financial services are related to substantially lower death rates from pre-omicron COVID-19." So what do you mean by substantially lower death rates?

Todd Watkins: One of the fascinating things, I think, that we found in completing this study was how important this financial access seems to be. It's one thing to show a statistical relationship, if it's kind of meaningless in the grand scheme of life, yeah, you can find a statistical evidence that this is maybe pushing you a little bit in this direction or a little bit in that direction. So there's this big difference between statistical significance and … meaningful difference. But I think in this case, it's both of those things. It's a substantial and meaningful difference that we found that was surprising to us.

And just to give a sense of the scale or the magnitude of this impact, I'll put it in a little bit technical terms. We found, just as an example, if you go from the middle of the pack of access to financial services, we have countries ranked by their population's ability to access a whole host of different financial services.

But if you're sort of in the middle of that pack and you move one standard deviation as a country up to maybe two-thirds of the way through the distribution or a little bit higher access — one standard deviation, higher access to financial services at the population level, so more people are getting access to bank accounts, savings accounts, insurance products, and so on — that mortality is cut in half from COVID, after you control for all the other things that we've put in our model, like age distributions and wealth per capita, and so on.

So it's actually an amazingly big difference that you-- one standard deviation moving from middle of the pack to two-thirds of the way up the pack-- if you went from two-thirds to half, COVID mortality rates would double. So it's an amazing difference.

Croft: How [does that] compare to other determinants of COVID-19 mortality?

Watkins: One of the other big factors in COVID mortality in the public health literature has been fairly obvious, lung cancer. COVID is a respiratory disease. And so countries that had high lung cancer incidence where people had a lot of respiratory problems already, if you did the same one standard deviation change and lung cancer-- a country that was in the middle of the pack and then compare that to a country that's two-thirds of the way up the pack in lung cancer, they had about two-thirds of an increase in COVID mortality. So it's roughly the same magnitude as the scale of-- but the opposite direction, more lung cancer, more COVID. We found more financial access, less COVID. Those are roughly the same order of magnitude and impact.

So another example is income inequality. So one of the big things that people have noticed around the globe is that places where there's high inequality, big differences between the wealthy and the poor, the poor were getting hammered with COVID compared to the rich within individual countries. The same thing was happening all over the world, that poor people and marginalized populations were really getting much more severe problems with COVID and COVID mortality. And that influence is about 50% of the influence that we found in terms of the relative impact. So financial services turned out to be a really big deal.

Croft: You write within the study that excluding access to financial services from other studies, quote, "may be a major gap in the literature relating to COVID-19 mortality." Do you see your research as having broader implications for public health research beyond COVID-19?

Watkins: The literature in public health … doesn't ignore financial services, but it tends to focus in a different way. Insurance is fairly obvious that that's important. Medicare, Medicaid studies are all over the place. A lot of people study nationalized health care systems where the national health care is free for people.

But other forms of financial services can also be relatively important, especially in developing or poor economies. Shock absorbing is a really important characteristic of financial services. If you have a bank account, if you have a savings account, even if you don't have insurance, that can be your insurance. You can go and take money out of your bank – if you have a bank to go and take money out of – to pay for going to the doctor or paying for the medicine for your kid. You can put it on credit cards. You can go to a payday lender even, and get a loan in advance of your paycheck that's coming in.

Those are financial services that are insurance-like in that sense that might be related to health. And I think those secondary elements beyond insurance have not gotten nearly as much attention in the public health literature as our study indicates might be justified. Maybe COVID is different in the way it behaved around the globe. But my intuition is that probably not. There's probably all sorts of other public health implications of these secondary, tertiary financial services and or informal sector approaches to it that we have yet to really delve deeply into.

Todd A. Watkins

Todd A. Watkins

Todd A. Watkins, Ph.D., is a professor in the Department of Economics and executive director for Martindale Center for the Study of Private Enterprise and Microfinance Program at Lehigh Business.