The relevance of institutional quality as a transmission channel for digital financial inclusion: Evidence from African economies and implications for sustainable development
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Abstract
Purpose: This study examines whether institutional quality is an effective transmission channel between digital financial literacy and financial inclusion in African economies, with implications for sustainable development goals related to poverty reduction and economic inclusion.
Methodology: The research employs principal component analysis to construct a financial inclusion index and applies system Generalized Method of Moments (GMM) estimation techniques to analyze panel data from 41 African economies (7 emerging, 26 frontiers, and 8 fragile) from 2004 to 2022.
Results: Financial inclusion in Africa is more responsive to access indicators (ATMs and internet banking) than penetration and usage indicators. While the direct impacts of digital finance and institutional quality on financial inclusion show ambiguous results, their interaction demonstrates a significant positive effect, indicating that institutional quality successfully moderates digital finance's impact on financial inclusion.
Theoretical Contribution: The study extends existing financial inclusion theory by identifying institutional quality as a critical transmission mechanism that can transform potentially negative effects of digital finance into positive outcomes for financial inclusion in developing economies.
Practical Implications: Findings suggest that African policymakers should prioritize institutional development alongside digital financial education to effectively leverage digital finance for inclusive growth, supporting sustainable development goals for reducing inequality and promoting economic participation.
Sustainable Development Goals (SDGs): SDG 1: No Poverty; SDG 8: Decent Work and Economic Growth; SDG 9: Industry, Innovation and Infrastructure; SDG 10: Reduced Inequalities
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This work is licensed under a Creative Commons Attribution 4.0 International License.
This work (article) is licensed under a Creative Commons Attribution 4.0 International License.
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