The Synergistic Effects of Digitalization and Financial Capital on Inclusive Growth: Evidence from Sub-Saharan Africa - A Panel PMG-VECM Analysis

Mabrouki, Mohamed (2025): The Synergistic Effects of Digitalization and Financial Capital on Inclusive Growth: Evidence from Sub-Saharan Africa - A Panel PMG-VECM Analysis.

Abstract

This study examines the synergistic effects of digitalization and financial development on inclusive growth in Sub-Saharan Africa. Using a balanced panel from 13 countries (2000–2022) and the Pooled Mean Group Vector Error Correction Model (PMG-VECM), we establish a robust long-run equilibrium. Findings reveal digitalization (Internet penetration) and institutional quality as the strongest drivers, with elasticities of 0.084 and 0.424, respectively. Financial development shows a moderate positive effect (0.075), while investment and trade openness present counterintuitive negative coefficients, suggesting structural inefficiencies. A significant error correction mechanism confirms convergence towards long-run equilibrium at a 19.5% annual speed. As the first comprehensive application of PMG-VECM to this nexus in SSA, this study provides methodologically robust evidence that distinguishes short-run dynamics from long-run effects. The results underscore the necessity for integrated, long-term policies that simultaneously advance digital infrastructure, financial sector deepening, and institutional quality to foster inclusive growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: 1. Digital Transformation 2. Financial Development 3. Inclusive Growth 4. PMG-VECM 5. Sub-Saharan Africa 6. Institutional Quality 7. Panel Cointegration
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa

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