Can financial inclusion reduce the presence of corruption? Evidence from selected countries in Africa

Abstract

Purpose

The purpose of this paper is to evaluate the impact of financial inclusion (FI) on control of corruption in selected African countries.

Design/methodology/approach

The study employs secondary data spanning over a period of 2005–2016. These data are sourced from IMF's International Financial Statistics, World Bank Development Indicators, Global Financial Development Database, Transparency International and International Country Risk Guide. The author uses Sarma (2008) approach to construct the FI index for 13 countries in Africa. The author applies random effect, robust least square and instrumental variable (IV) estimations to examine the impact of FI on control of corruption in Africa.

Findings

The author finds that financial inclusion improves the control of corruption. The author tests for possible FI threshold to avoid the case of extreme FI in Africa. The results show that there is a threshold level if reached, FI would have negative impacts in the control of corruption. This may likely happen mainly due to weak institutions in Africa. The results are robust to alternative proxy for control of corruption and various alternative estimation techniques.

Practical implications

The finding indicates that FI can serve as part of toolkits for reducing corruption in Africa.

Originality/value

This study stresses the important role of FI in the economic system. It is the first paper that empirically suggests the role of FI in controlling corruption in Africa.

Citation

Ajide, F.M. (2020), "Can financial inclusion reduce the presence of corruption? Evidence from selected countries in Africa", International Journal of Social Economics, Vol. 47 No. 11, pp. 1345-1362. https://doi.org/10.1108/IJSE-03-2020-0145