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Shadow economy in Africa: how relevant is financial inclusion?

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  • Folorunsho M. Ajide

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.

Suggested Citation

  • Folorunsho M. Ajide, 2021. "Shadow economy in Africa: how relevant is financial inclusion?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 29(3), pages 297-316, April.
    • Handle: RePEc:eme:jfrcpp:jfrc-10-2020-0095
    DOI: 10.1108/JFRC-10-2020-0095
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    2. Ajide Folorunsho M., 2021. "Financial Inclusion and Labour Market Participation of Women in Selected Countries in Africa," Economics and Culture, Sciendo, vol. 18(1), pages 15-31, June.
    3. James Temitope Dada & Folorunsho Monsur Ajide & Adams Adeiza, 2022. "Shadow Economy and Environmental Pollution in West African Countries: The Role of Institutions," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(3), pages 366-389, September.
    4. Goudarzi, Mostafa & Mittone, Luigi, 2023. "Shrinking the shadow economy: Experimental insights into the role of financial development," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).
    5. A. Ajisafe, Rufus & D. Odejide, Adekunle & M. Ajide, Folorunsho, 2021. "Monetary Policy And Financial Stability In Nigeria," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 8(2), pages 17-35, June.
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    More about this item

    Keywords

    Financial inclusion; Informality; Panel data; Africa; C23; G20; H26; O17;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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