Financial globalization, digital financial system and economic wealth in Africa

Abstract

The study examines the joint effect of foreign direct investment (FDI) and financial inclusion on economic wealth in a digital system. By employing the dynamic system GMM for a dataset of 54 African economies over the period, 2004–2022, both the FDI and the dimensions of financial inclusion have a positive effect on economic wealth. We also find that FDI and financial inclusion are complements in determining economic wealth. We provide evidence that a digital system induces a relatively greater effect of FDI and financial inclusion on economic wealth compared to its direct effect. The study found that financial inclusion relatively enhances the effect of FDI on economic wealth in countries that operate in a highly industrialized sector of the economy compared to those in a low industrialized economy. In addition, the complementarity effects are more profound in a digitalized technological environment compared to those with less focus on digitalization.