The interconnectedness of digital finance, financialization, and financial inclusion: Evidence from Sub-Saharan Africa

Abstract

The purpose of this study is to examine the interplay among digital finance, financialization, and financial inclusion using panel data from a sample of 29 sub-Saharan African countries. The data cover a period of 10 years from 2013 to 2023 and were retrieved from the World Bank database. Autoregressive distributed lag with an error correction model (ARDL-ECM) was employed to analyze the data. The findings reveal a nuanced interplay among the variables. In the long run, (1) digital finance has no significant effect on financial inclusion; (2) digital finance has a significant positive effect on financialization; and (3) financialization promotes financial inclusion. The short-run Granger causality test further reveals a unidirectional causality running from financialization to digital finance; a bidirectional causality running from digital finance to financial inclusion and from financial inclusion to digital finance; and a bidirectional causality running from financialization to financial inclusion and from financial inclusion to financialization. Overall, our findings are robust to several diagnostic tests.