Examining the Impact of Financial Inclusion on Unemployment in Africa (A Panel Data Analysis)

Abstract

Financial inclusion improves the accessibility of the poor and other marginalized groups to basic financial services such as savings, investments, credits, and insurance which directly influences income. This study uses panel data analysis and the two-step Generalized Method of Moments (GMM) estimation to empirically assess the relationship between financial inclusion and unemployment in 49 African countries from 2009 to 2020. The results show that financial inclusion has a negative and significant effect on unemployment. This supports the idea that financial inclusion can help African countries in job creation by reducing unemployment thus it suggests an increase in access and use of financial services. The study also finds that the effect of financial inclusion on unemployment is stronger in countries with higher levels of education. This suggests that education is an important factor in the relationship between financial inclusion and unemployment. The results of the study have important policy implications for African countries that want to reach the Sustainable Development Goals (SDGs). Especially, SDG-8 which promotes inclusive and sustained economic growth with full employment and productivity. Governments should introduce policies regarding the usage of mobile money and microfinance in rural areas to enhance financial inclusion. Moreover, sustaining of economic growth through encouraging foreign direct investment and new business creation may help bring down the unemployment rate.