Digital innovation and financial access for small and medium-sized enterprises in a currency union

Thierry U. Kame Babilla

Economic Modelling, 2023, vol. 120, issue C

Abstract: This paper studies how digital innovation affects small and medium-sized enterprises’ financial access and productivity growth in a currency union with an incomplete credit market. Theoretically, while the effects of inclusive banking are ambiguous, digital financial innovation’s impact on financial access is yet to be fully explored. Using quarterly data from the West African Monetary Union over the period 1986Q2–20221Q1, we estimated a dynamic general equilibrium framework that disentangles digital financial inclusion from inclusive banking and features heterogeneity among firms. We found that digital innovation solves credit discrepancies among firms beyond inclusive banking. Digital innovation enhances small and medium-sized enterprises’ financial access by alleviating financial frictions arising from collateral and borrowing constraints. Digital financial inclusion amplifies the propagation of financial mechanisms into small and medium-sized enterprises’ productivity expansion that spills over throughout the currency union. The efficiency effects explain why digital financial inclusion enables better SMEs’ financial access than inclusive banking.

Keywords: Digital innovation; Financial access; Small and medium-size enterprises; Digital financial inclusion; Currency union (search for similar items in EconPapers)
JEL-codes: C54 D22 G23 G32 O31 O47 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:120:y:2023:i:c:s0264999322004199

DOI: 10.1016/j.econmod.2022.106182

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