Financial inclusion, bank competition and economic growth in Africa

Abstract

Orientation: The relevance of bank competition and economic growth for boosting financial inclusion is attracting unprecedented attention from academics and policymakers, mainly because of several persisting issues which, if addressed, can enhance the functionality of governments, businesses, individuals and the economy. Research purpose: The study aims to examine the interplay between financial inclusion, bank competition and economic growth in Africa. Motivation for the study: Previous literature focuses mainly on the nexus between financial inclusion and bank competition, financial inclusion and economic growth and bank competition and economic growth producing diverse results, with a dearth of literature on the trivariate link between the three variables. Research approach/design and method: This study employed the pooled mean group estimation-based panel autoregression distribution lag approach from 2004 to 2018. A panel data analysis for 20 African countries was used. Main findings: The study found a significant positive relationship between financial inclusion and economic growth in the long run. However, in the short run, economic growth significantly reduces financial inclusion. We also found that in the long-run bank competition reduces financial inclusion in line with the information hypothesis. However, in the short run the effect is significantly positive, consistent with the market power hypothesis. Practical/managerial implications: Policymakers and development agencies should implement measures that reckon incentives that can accelerate bank competition to bring on-board the unbanked. They should also take note of financial inclusion measurement in addressing financial inclusion challenges. Moreover, they should minimise barriers to financial inclusion to enhance bank competition and stability. Contribution/value-add: The study managed to discover how bank competition and economic growth influences financial inclusion.

Keywords

• bank competition
• financial inclusion
• economic growth
• panel auto regression distribution lag
• pooled mean group