The Nexus between Financial Innovation, Financial Inclusion, and Economic growth in Africa: A PMG Approach

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue X, October 2021 | ISSN 2454–6186

 The Nexus between Financial Innovation, Financial Inclusion, and Economic growth in Africa: A PMG Approach

Tough Chinoda¹, Josphat Nyoni², Maxwell Chufama³, Andrew Jeremiah⁴, Martin Dandira^{5
1, 2} Senior Lecturer, Faculty of Management and Entrepreneurial Sciences, Women’s University in Africa, Manresa, Harare, Zimbabwe
^3,4,5Lecturer, Namibia University of Science and Technology

Abstract: This study investigates the nexus between financial inclusion, financial innovation and economic growth in Africa by employing the panel autoregressive distribution lags using panel data over the period 2004–2018. The empiri¬cal findings reveals that the impact of economic growth on financial inclusion in Africa is positive and significant in the short and long run lending support to the growth led finance hypothesis that financial inclusion leads to economic growth. This paper, also finds a significant positive effect of financial innovation on financial inclusion in the long and short run in line with the supply leading hypothesis. We thus recommend policymakers to implement strategies that reckon incentives that can accelerate economic growth and financial innovations which can ultimately augment financial inclusion.

Keywords: financial innovation; economic growth; financial inclusion; panel autoregressive distribution lag; pooled mean group

JEL Classification: O31; O16; G21

I. INTRODUCTION

Africa leads the world in the digital economy in terms of innovation and telecommunication infrastructure (Dune and Kasekende, 2018). This offers the African continent an opportunity to continuously shape its economies and to aspire growth into a global innovation hub post Covid-19. There exists no universal definition of financial inclusion and financial innovation. Financial inclusion is the process of ascertaining access to or use of affordable financial services and products that suits the necessities of businesses and individuals, conducted in a viable and answerable manner (World Bank, 2017). Tufano (2002) defined financial innovation as the process of development, diffusion, and commercialization of new financial instruments, financial technologies, financial institutions, and financial markets in the economy. The product innovation and process innovation addresses the presence of financial innovation in the financial system. Economic growth is the change in the gross domestic product of an economy. Financial inclusion and financial innovation plays a pivotal role in the financial system through optimising financial efficacy and effectiveness

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