Examining Financial Inclusion, Performance Management and Economic Prosperity in Africa

Abstract

This study examines the nexus between financial inclusion, financial performance and economic prosperity in 54 selected African countries from 2000 to 2020. In order to carry out investigation, if financial inclusion and financial performance influence economic prosperity in Africa, we employed number of registered mobile accounts per 100,000 adults (NRMA), number of agent mobile money outlets per 100,000 adults (NAMO), digital card ownership (DCO), and financial literacy (FINLIT) as measures of financial inclusion; return on assets (ROA); return on equity (ROE) and gross domestic product deflator (GDP-DEF) as measures of financial performance and health (HELT), education (EDU), social capital (S-CAPITAL), gross domestic product per capita (GDPpc) and prosperity index (P-Index) as measures of economic prosperity, while controlling for consumer price index (CPI), foreign direct investment (FDI) and real exchange rate (REXR). Findings from the results of Pedroni and Kao cointegration tests suggested that cointegration exists between financial inclusion, financial performance and economic prosperity. Also, evidence from MG, DFE and PMG results shows that positive long-run relationships exists between financial inclusion, financial performance, and economic prosperity in Africa. In the short-run, the coefficients of the error correction terms for the specified models were negative and statistically significant and the speed of adjustment varies across models. In addition, this study employed differenced and system generalized method of moments (GMM) as robustness check to the earlier findings and it was confirmed that long-run relationships exists between financial inclusion, financial performance and economic prosperity in Africa. Policies which will lead to improvement of financial inclusion and financial performance was prescribed so as to achieve greater economic prosperity.