The impact of informality on inclusive growth in Sub-Saharan Africa: Does financial inclusion matter?

Rising poverty levels in Sub-Saharan Africa requires a better understanding of inclusive growth determinants to develop effective policy responses. Using panel data from 44 Sub-Saharan African countries for the period 1990-2018, we compute measures of inclusive growth based on gender and the rural-urban divide. We account for endogeneity, cross-sectional dependence, and heteroscedasticity, and estimate an inclusive growth model using the instrumental variable generalized method of moments (IV-GMM) estimator. The empirical evidence indicates that the impact of informality on inclusive growth depends on the measure of informality and inclusiveness. Our results show that financial inclusion exhibits an inverted U-shaped relationship with inclusive growth. Also, we find that the moderating role of financial inclusion in the informality-inclusive growth nexus is mixed. Our results are robust to alternative model specifications and highlight the importance of financial inclusion and informality in influencing inclusive growth in Sub-Saharan Africa. (c) 2021 Published by Elsevier Inc. on behalf of The Society for Policy Modeling.

Automated summary

This study investigates the determinants of inclusive growth in Sub-Saharan Africa using panel data analysis, finding an inverted U-shaped relationship between financial inclusion and inclusive growth. The moderating role of financial inclusion in the relationship between informality and inclusive growth is found to be mixed.