Does digitisation determine financial development? Empirical evidence from Africa

Abstract

AbstractAfrica 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.

Keywords

• Financial sector development
• economic growth
• digitisation
• bayesian panel vector Auto-Regressive model
• gross domestic product
• Economics, finance, development studies, cities &