Financial Development, Institutional Quality and Inclusive Growth in Africa
Date
2022
Journal Title
Journal ISSN
Volume Title
Publisher
Global Business Review
Abstract
We investigate the relationship between Financial Development (FD) and Inclusive Growth (IG)
unlike extant literature, whose concentration has been on economic growth, which we refer to as
wholesale growth. While we examine the effect of FD on IG, we investigate the moderating role
played by institutions and the regulatory ambience in conveying the strides of FD towards the poor.
We measure IG through a social mobility function approach and also construct an IG Index using
Asian Development Bank’s framework of IG for robustness. We employ a 27-year-old panel data collected
from across 48 African countries in our dynamic estimations of the FD-IG nexus. We find a non-linear
relationship between finance and IG. Our results show that for FD to lead to IG, there is a need to
have an effective institutional setup that regulates financial market participants to be inclusive in their
operations. With weak institutions, FD’s effect on IG is negative. Our study does not just investigate
how FD explains how much money there is overall, but how the money is shared across societies as
well. This study is the first to examine the finance-growth nexus from the perspective of inclusivity.
Practical policy implications are also discussed.
Description
Research Article
Keywords
Inclusive growth, financial development, institutions