STATE-DEPENDENCY IN THE NEXUS BETWEEN DIGITAL FINANCIAL INCLUSION AND ECONOMIC GROWTH IN SUB-SAHARAN AFRICA

Authors

DOI:

https://doi.org/10.26668/businessreview/2024.v9i6.4675

Keywords:

Financial Inclusion Index, Digital Financial Inclusion, Economic Growth, State Dependency, Quantile Regression

Abstract

Objective: The objective of this study is to investigate state-dependency in the nexus between digital financial inclusion and economic growth in sub-Saharan Africa, with the aim of examining the impact of adopting digital financial technology to reduce financial exclusion and contribute to economic growth.

 

Theoretical Framework: The paper extends the work of Sarma (2008) and Khera et al. (2021), by creating a new financial inclusion index that captures both traditional and digital financial inclusion.

 

Method: The methodology adopted for this research comprises the principal component analysis (PCA) to identify signals in financial inclusion indicators, thereafter financial inclusion indexes for digital and traditional financial services were constructed. The panel quantile regression methodology was employed to analyse the impact of shocks and determine state dependency in the nexus, respectively. Data collection was carried out through secondary sources.

 

Results and Discussion: The result confirms a positive relationship between digital financial inclusion and economic growth with the greatest impact in countries with lower real GDP, confirming state dependency.

 

Research Implications: The findings suggest that policymakers should focus on promoting digital financial inclusion, particularly in countries with low to intermediate levels of income.

 

Originality/Value: This study contributes to the literature by broadening the definition of digital financial inclusion beyond what is currently found in the literature to include vital financial inclusion dimensions such as access to financial services. The relevance and value of this research are further evidenced by the consideration of state-dependency in the relationship between financial inclusion and growth.

Downloads

Download data is not yet available.

References

Anarfo, E. B. (2018). Financial Inclusion, Monetary Policy, Financial Sector Development and Financial Regulation in Sub-Saharan Africa. Doctoral dissertation, University of Ghana.

Arestis, P., Demetriades, P. O., & Luintel, K. B. (2001). Financial development and economic growth: the role of stock markets. Journal of money, credit and banking, 16-41.

Bagehot, W. (1873). A Description of the Money Market. London: Henry King Publishers.

Beck, T., Demirgüç-Kunt, A., & Levine, R. (2007). Finance, Inequality and the Poor. Journal of Economic Growth, 12(1), 27-49.

Bencivenga, V. R., & Smith, B. D. (1991). Financial intermediation and endogenous growth. The review of economic studies, 58(2), 195-209.

Brune, L., Giné, X., Goldberg, J., & Yang, D. (2011). Commitments to save: a field experiment in rural Malawi. World Bank Policy Research Working Paper, 5748.

Burgess, R., & Pande R. (2005). Do rural banks matter? Evidence from the Indian social banking experiment. Am Econ Rev, 95(3), 780–795.

Chinoda, T., & Mashamba, T. (2021). Fintech,Ffinancial Inclusion and Income Inequality. Cogent Economics & Finance.

Cournède, B., Denk, O., & Hoeller, P. (2015). Finance and inclusive growth. SSRN 2649935.

Demirgüç-Kunt, A., & Levine, R. (1996). Stock market development and financial intermediaries: stylized facts. The World Bank Economic Review, 10(2), 291-321.

Epstein, G. A. (2005). ed. Financialization and the world economy. Edward Elgar Publishing.

Erlando, A., Riyanto, F. D., & Masakazu, S. (2020). Financial inclusion, economic growth, and poverty alleviation: evidence from eastern Indonesia. Heliyon, 6(10).

Fazzari, S. M., Morley, J., & Panovska, I. (2015). State-dependent effects of fiscal policy. Studies in Nonlinear Dynamics & Econometrics, 19(3), 285-315.

Feyen, E., Frost, J., Gambacorta, L., Natarajan, H., & Saal, M. (2021). Fintech and the Digital Transformation of Financial Services: Implication for Market Structure and Public Policy. BIS Papers, (117).

Friedman, M. (1977). Nobel lecture: inflation and unemployment. Journal of political economy 85(3), 451-472.

Gadanecz, B., & Jayaram, K. (2008). Measures of financial stability-a review. Irving Fisher Committee Bulletin, 31(1), 365-383.

Goldsmith, R. W. (1969). Financial Structure and Development. Yale University Press.

Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of political Economy, 98(5), Part 1, 1076-1107.

Gurley, J. G., & Shaw, E. S. (1955). Financial aspects of economic development. The American economic review, 45(4), 515-538.

Khera, P., Ng, S., Ogawa, S., & Sahay, R. (2021). Measuring Digital Financial Inclusion in Emerging Market and Developing Economies. IMF Working Paper, WP/21/90.

Kim, D.-W., Yu, J.-S., & Hassan, K. M. (2018). Financial Inclusion and Economic Growth in OIC Countries. Research in International Business and Finance, Elsevier, 43(C), 1-14.

Levine, R. (1991). Stock markets, growth, and tax policy. The journal of Finance, 46(4), 1445-1465.

Loukoianova, E., Yang, Y., De, J., & Guo, S. (2018). Financial Inclusion in Asia-Pacific. Washington DC: International Monetary Funds.

Lucas Jr, R. E. (1988). On the Mechanics of Economic Development. Journal of monetary economics, 22(1), 3-42.

Lütkepohl, H. (2006). Structural vector autoregressive analysis for cointegrated variables. Allgemeines Statistisches Archiv, 75-88.

McKinsey Global Institute. (2016). Digital Finance for All: Powering Inclusive Growth in Emerging Economies. San Francisco: McKinsey&Company.

Miller, M. H. (1988). Financial innovations and market volatility. Mid America Institute for Public Policy Research.

Omar, M. A., & Inaba, K. (2020). Does financial inclusion reduce poverty and income inequality in developing countries? A panel data analysis. Journal of Economic Structures, 37.

Pagano, M. (1993). Financial markets and growth: an overview. European economic review, 37(2-3), 613-622.

Park, C., & Mercado, R. V. (2018). Financial inclusion, poverty, and income inequality in developing Asia. ADB Economics Working Paper Series, 426(2015).

Rekha, G., Rajamani, K., & Resmi, G. (2021). Digital Financial Inclusion, Economic Freedom, Financial Development, and Growth: Implication from a Panel Data Analysis. ADBI Working Paper Series, (1244).

Robbinson, J. (1952). The generalization of the general theory. In The Rate of Interest and Other Essays, London: MacMillan.

Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Political, 94.

Rousseau, P. L., & Wachtel, P. (2000). Equity markets and growth: Cross-country evidence on timing and outcomes, 1980–1995. Journal of Banking & Finance, 24(12), 1933-1957.

Saab, G. (2017). Financial inclusion and economic growth. Business and Management Review, 8(4), 434-441.

Sahay, R., Cihak, M., N'Diaye, P., Barajas, A., Mitra, S., Kyobe, A., & Yousefi, S. R. (2015). Financial Inclusion: Can it Meet Multiple Macroeconomic Goals. SDN/15/17.

Saint-Paul, G. (1992). Technological choice, financial markets and economic development. European Economic Review, 36(4), 763-781.

Sarma, M. (2008). Index of Financial Inclusion. Indian Council for Research on International Economic Relations.

Sarma, M. (2012). Index of Financial Inclusion: A Measure of Financial Sector Inclusiveness. Competence Centre on Money, Trade, Finance and Development, 1207.

Schumpeter, J. A. (1911). The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Cambridge, MA: Harvard Economic Studies.

Silber, W. L. (1983). The process of financial innovation. The American Economic Review, 73(2), 89-95.

Solow, R. (1964). Capital, labor, and income in manufacturing. In The behavior of income shares: Selected theoretical and empirical issues (pp. 101-142). Princeton University Press.

Sy, A. N., Maino, R., Massara, A., Perez-Saiz, H., & Sharma, P. (2019). FinTech in Sub-Saharan African Countries: A Game Changer? International Monetary Funds, Departmental Paper, (2019/004).

Thaddeus, K. J., Ngong, C. A., & Manasseh, C. O. (2020). Digital Financial Inclusion and Economic Growth: Evidence from Sub-Saharan Africa (2011-2017). The International Journal of Business & Management, 212, 8(4).

Thornton, D. L. (2007). The lower and upper bounds of the Federal Open Market Committee's long-run inflation objective. Review-Federal Reserve Bank of Saint Louis, 89(3), 183.

Ugwuanyi, U., Ugwuoke, R., Onyeanu, E., Eze, E. F., Prince, A. I., Anago, J., & Ibe, G. I. (2022). Financial inclusion-economic growth nexus: traditional finance versus digital finance in Sub-Saharan Africa. Cogent Economics & Finance, 10(1).

United Nations. (2015). Transforming our world: the 2030 Agenda for Sustainable Development. New York: Department of Economic and Social Affairs.

Wentzel, J. P., Diatha, K. S., & Yadavalli, V. S. (2016). An investigation into factors impacting financial exclusion at the bottom of the pyramid in South Africa. Development Southern Africa, 33(2), 203-214.

World Bank. (2008). Finance for all? Policies and pitfalls in expanding access. Washington DC: World Bank.

World Bank. (2018). Financial Inclusion on the Rise, But Gaps Remain, Global Findex Database Shows. Washington: World Bank.

Wu, Y., & Huang, S. (2022). The effects of digital finance and financial constraint on financial performance: Firm-level evidence from China's new energy enterprises. Energy Economics, 112, 106158.

Downloads

Published

2024-06-17

How to Cite

Jimoh, L., & David, O. O. (2024). STATE-DEPENDENCY IN THE NEXUS BETWEEN DIGITAL FINANCIAL INCLUSION AND ECONOMIC GROWTH IN SUB-SAHARAN AFRICA. International Journal of Professional Business Review, 9(6), e04675. https://doi.org/10.26668/businessreview/2024.v9i6.4675