Digital financial inclusion, informal economy and poverty reduction in Africa

Abstract

Purpose This paper aims to examine the relationship between mobile phones, the internet, financial inclusion, the informal economy and poverty reduction. Design/methodology/approach The study examines the relationship between mobile phones, the internet, financial inclusion, the informal economy and poverty reduction using the system generalized method of moments approach and a panel data set of 42 African countries for the period 1995–2017. Findings The study shows that mobile penetration and internet usage have significant positive relationship with the informal sector. Financial inclusion has significant effects, meaning that increased financial inclusion is associated with a developed informal economy. Also, mobile penetration and internet usage play significant roles in the relationship between financial inclusion and the informal economy. Further, mobile penetration and internet usage have a significant positive relationship with poverty reduction. Similarly, financial inclusion has significant effects, meaning higher financial inclusion is associated with increased poverty reduction. The informal economy also has significant effects, suggesting that the development of the informal economy is associated with poverty reduction. Originality/value Most importantly, mobile penetration, internet usage and financial inclusion play significant roles in the link between the informal economy and poverty reduction.