Inclusive Growth in Africa: Exploring Contingencies and Thresholds of Financial Development and the Digital Economy

Abstract

ABSTRACT Given the persistent inequalities and economic disparities, the quest for inclusive growth has become more critical. Nevertheless, a substantial knowledge gap exists regarding the role of the digital economy and financial development in inclusive growth. In light of this, this paper examines the direct, synergistic, and threshold effects of financial development and the digital economy on inclusive growth in Africa. The study considered 38 countries between 2000 and 2019 and was estimated using the dynamic panel threshold and the generalised method of moments technique. The key results are presented as follows: (1) digital economy fosters inclusive growth; (2) financial development presents a significant moderating influence on the digital economy‐inclusive growth nexus, suggesting that the influence of the digital economy on inclusive growth is more profound amid a robust financial system; (3) the results from the dynamic panel threshold demonstrate a non‐linear U‐shaped nexus between inclusive growth and the digital economy, while financial development demonstrates a linear and significant impact in the upper regime, implying that higher levels of the digital economy and financial development are essential to fostering inclusive growth and vice versa. Given this, the study recommends that policymakers ensure a robust financial system and investment in digital infrastructure to promote inclusive growth.