Financial inclusion, ICT development and economic growth in WAEMU countries: evidence of governance

Abstract

Purpose

The main objective of this paper is to examine how short- and long-term dynamics can be promoted through economic growth policies, financial inclusion initiatives, institutions and ICT infrastructure development. The study focuses on West African Economic and Monetary Union (WAEMU) member countries over for the period 2000–2020 and the empirical evidence is based on the autoregressive distributed lag (ARDL) method. Our empirical results show that the synthetic index variables of financial inclusion, ICT infrastructure development and individual or composite governance institutions indicators are positively and significantly interrelated in both the short and long runs. A dynamic combination of variables is essential for WAEMU countries to achieve long-term economic development. Policy implications are discussed.

Design/methodology/approach

Consistent with our goal of testing the dynamics of financial inclusion, governance and ICT on economic growth, we will estimate our equations using the ARDL panel method. ARDL models or autoregressive models with staggered or distributed delays are dynamic models. The particularity of these models is that they take into account temporal dynamics (i.e. expectations, adjustment delays and inter alia), so we adopted a lagged autoregressive model (ARDL). The popularity of the ARDL approach also stems from the fact that the cointegration of nonstationary variables is equivalent to an error correction (EC) process.

Findings

The empirical results simultaneously depict strong endogenous associations between these variables in the short and long run. The short-run analysis indicates that economic growth, financial inclusion, institutional quality and ICT infrastructure development are strongly interdependent. These union states, in their economic growth policies, encourage the financial inclusion (access and penetration of bank branches) of disadvantaged communities. However, efficient institutional policies reinforce this sustainable growth. The efficient use of telecommunications infrastructure requires the regulation of informal employment in WAEMU countries for the better deployment of efficient, secure and cost-effective digital financial payment systems (fintech).

Research limitations/implications

The findings in this study evidently leave space for future research, especially as it concerns considering how composite governance can be employed as a moderating indicator for financial inclusion. In conclusion, there is an interdependence between financial inclusion, ICT, institutions and economic growth. An effective combination of these elements can create an ecosystem conducive to economic development by promoting access to financial services, harnessing the benefits of ICT and building robust institutions. However, challenges can also arise, such as the need for appropriate regulations and security guarantees for electronic transactions.

Practical implications

Governments should strengthen financial inclusion and promote policies aimed at improving access to financial services, such as microcredits, mobile banking and initiatives for the unbanked. Financial education is crucial for enhancing financial inclusion. Educational programs that teach citizens how to use financial services can increase participation and stimulate economic growth. Moreover, policies should focus on improving digital infrastructure, such as broadband networks and data centers, to facilitate access to the internet and other technologies and to promote innovation and startups. Governments should strive to create a balanced regulatory framework that encourages investment and innovation while avoiding excessive regulation that could hinder growth. Implementing targeted regulatory reforms to improve efficiency and transparency can enhance investor confidence and support a more dynamic economic environment.

Originality/value

This work constitutes a considerable contribution to the literature on finance, institutions and growth in WAEMU countries and in terms of methodology. The findings in this study evidently leave space for future research, especially as it concerns considering how composite governance can be employed as a moderating indicator for financial inclusion. In conclusion, there is an interdependence between financial inclusion, ICT, institutions and economic growth. An effective combination of these elements can create an ecosystem conducive to economic development by promoting access to financial services, harnessing the benefits of ICT and building robust institutions.

Citation

Awa, T. and Abdou Khadre, D. (2024), "Financial inclusion, ICT development and economic growth in WAEMU countries: evidence of governance", African Journal of Economic and Management Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/AJEMS-02-2023-0071