The Impact of Financial Inclusion and Stability on Economic Growth in African Countries

Abstract

This study investigates the effect of financial inclusion and financial stability on economic growth in a panel study of 30 African countries over the period between 2004 and 2020. Data were analyzed using the panel ARDL model. The panel ARDL estimation results demonstrate that financial inclusion has a statistically significant positive long-term effect on economic growth, though its short-term impact is insignificant. The study also found that the effects of financial inclusion on economic growth vary across different income levels. Specifically, there is a positive association in low-income countries, a negative association in lower-middle-income countries, and a positive but insignificant effect in upper-middle-income countries. On the other hand, the financial stability measured by the bank Z-score has a significant negative impact on long-run economic growth and a positive one in the short run. The effect is negative for low-income countries, positive for lower-middle-income countries, and negative but insignificant for upper-middle-income countries. Thus, the study findings suggest financial inclusion and financial stability policies should be tailored to the country's income level in African countries.