Does digitisation determine financial development? Empirical evidence from Africa

Abstract

Africa is investing and recalibrating its digital infrastructure in the financial and other sectors to support economic growth and development. It is in light of this, the study seeks to examine from an empirical perspective whether digitisation has a significant role in financial development in African countries. Specifically, the study employed macroeconomic data on Africa from World Development Indicators (WDI) from the period of 2000-2021. The data covers all the 54 African countries. Bayesian Panel Vector Auto-Regressive (BPVAR) was adopted to estimate the parameters involved in the study objective. The results indicate that digitisation helps to increase financial inclusion, reduce transaction costs, and promote the development of new financial products and services, all promoting financial development and exploiting its allied opportunities. The findings also suggest that other factors such as infrastructure, financial inclusion, economic development, institutional quality, and government support are important for the development of the financial sector and should be addressed in conjunction with digital innovation. Policymakers in Africa should take note of these findings and work to create an enabling environment that supports financial sector development. Efforts to improve institutional quality, governance, and infrastructure can help to create a more conducive environment for financial development. Overall, the study suggests that digitisation has the potential to improve financial sector development in Africa, and can play a key role in mitigating financial risk, improving financial sector efficiency and harnessing the opportunities that abound in the financial sector.

Impact statement

There are currently encouraging efforts in place by African leaders to digitise almost every sphere of the African economy as a result, Africa is witnessing rapid development in the digital front especially in the financial sector. It is in the light of the aforementioned, the study examined from an empirical perspective whether digitisation has a significant role in financial development in African countries. The results indicate that digitisation helps to increase financial inclusion, reduce transaction costs, and promote the development of new financial products and services, all promoting financial development and exploiting its allied opportunities. The findings also suggest that other factors such as infrastructure, financial inclusion, economic development, institutional quality, and government support are important for the development of the financial sector and should be addressed in conjunction with digital innovation.

The study is advocating for policymakers in Africa to take note of these findings and work to create an enabling environment that supports financial sector development. Efforts to improve institutional quality, governance, and infrastructure can help to create a more conducive environment for financial development. Overall, the study suggests that digitisation has the potential to improve financial sector development in Africa, and can play a key role in mitigating financial risk, improving financial sector efficiency and harnessing the opportunities that abound in the financial sector.

Keywords:

• Financial sector development
• economic growth
• digitisation
• bayesian panel vector Auto-Regressive model
• gross domestic product

SUBJECT:

• Economics, finance, development studies, cities &
• the developing world, urban development

Reviewing Editor:

• Yamini Sharma, Taylor and Francis, India

Author Contributions

UA: Wrote the introduction of the paper and also conducted the analysis and interpretation of the data. ALS: Performed a literature search and reviewed all the literature in the study. MSSS: Conducted or worked on the methodology section of the paper. MMY: Critically revised the paper for intellectual content and worked on the final approval version for submission. All the aforementioned authors collectively agreed to be accountable for all aspects of the work.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The study used publicly available data from WDI and Trading Economics which is available on their respective websites. However, the authors are ready to make the data and any materials associated with the paper available to anyone upon reasonable request.

Additional information

Funding

The study received no funding and is the sole work of the authors.

Notes on contributors

Umar Adam

Umar Adam is with the Department of Agriculture and Food Economics, University for Development Studies, Ghana. He holds Bachelor of Commerce with Specialization in finance and MPhil Agricultural Economics. His research interests revolve around macroeconomics, time series analysis, development economics, financial sector development, agricultural economics, international trade, monetary policy and financial markets.

Abdul Latif Sulemana

Abdul Latif Sulemena is an Accountant at Ghana Education Service. He holds BA Integrated Business Studies with specialization in Accounting and a Postgraduate student (MSc Accounting and Finance at Kwame Nkrumah University of Science and Technology). His area of research includes financial market, corporate governance and ethics, corporate finance and digital marketing.

Mohammed Shamsudeen Sandow Sule

Mohammed Shamsudeen Sandow Sule is with the Treasury Unit of the Directorate of Finance at the University for Development Studies. He is a professional accountant with eight years of experience. He holds Bachelor of Commerce with Specialization in Finance and MBA Accounting and Finance. His area of research includes assets pricing, corporate governance, financial development and international trade.

Mohammed Mudasir Yussif

Mohammed Mudasir Yussif is a lecturer at the Department of Finance, School of Business, University for Development Studies. He holds BA Integrated Development Studies with option in Economics, MSc Finance and Economics, MPhil Agricultural Economics. He is currently pursing PhD in Development Finance at University for Development Studies in Ghana. His area of research includes financial sector development, digitisation, development economics, food Security among many others.