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Shadow economy in Africa: how relevant is financial inclusion?

Folorunsho Ajide ()

Journal of Financial Regulation and Compliance, 2021, vol. 29, issue 3, 297-316

Abstract: Purpose - This study aims to investigate the possible relationship between financial inclusion and shadow economy in selected African countries. Design/methodology/approach - The study uses panel data estimation technique and Toda and Yamamoto causality approach. The data of selected African counties over a period of 2005–2015 are sourced from World Bank Development Indicators, International Monetary Fund International Financial statistics database and International Country Risk Guide. Findings - The results show that financial inclusion reduces the size of shadow economy. The causality results show that there is a unidirectional causality moving from financial inclusion to shadow economy. The results demonstrate that a country with lower level of corruption and higher level of growth can benefit more in reducing the size of shadow economy through financial inclusion. Originality/value - This study provides the first evidence of the link between financial inclusion and shadow economy from the Sub-Saharan Africa perspective. The study suggests that financial inclusion may be useful in affecting the size of shadow economy in Africa.

Keywords: Financial inclusion; Informality; Panel data; Africa; C23; G20; H26; O17 (search for similar items in EconPapers)
Date: 2021
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