Amu abi, Cyp ian
A icle
The impac o inancial inno a ions on inancial deepening
in A ica: implica ions o household consump ion
expendi u e
Cogen Business & Managemen
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Taylo & F ancis G oup
Sugges ed Ci a ion: Amu abi, Cyp ian (2024) : The impac o inancial inno a ions on inancial
deepening in A ica: implica ions o household consump ion expendi u e, Cogen Business &
Managemen , ISSN 2331-1975, Taylo & F ancis, Abingdon, Vol. 11, Iss. 1, pp. 1-17,
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The impac o financial inno a ions on financial
deepening in A ica: implica ions o household
consump ion expendi u e
Cyp ian Amu abi
To ci e his a icle: Cyp ian Amu abi (2024) The impac o financial inno a ions on financial
deepening in A ica: implica ions o household consump ion expendi u e, Cogen Business &
Managemen , 11:1, 2393740, DOI: 10.1080/23311975.2024.2393740
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Banking & Finance | ReseaRch aR icle
Cogen Business & ManageMen
2024, VoL. 11, no. 1, 2393740
The impac o inancial inno a ions on inancial deepening in A ica:
implica ions o household consump ion expendi u e
cyp ian amu abi
Depa men o economics, uni e si y o nai obi, nai obi, Kenya
ABSTRACT
his pape used annual da a o he pe iod 2012–2019 o examine he impac o
inancial inno a ions on inancial deepening in 34 a ican coun ies. adding no el y o
he li e a u e, we also sough o in es iga e whe he he pe cei ed inancial deepening
ins iga ed by inancial inno a ions ac ually s ee ed household Final consump ion
expendi u e. Fi e inancial inno a ion indica o s namely he a ica in as uc u e
De elopmen index, au oma ed elle Machines, bank b anches, mobile cellula
subsc ip ions & secu e in e ne se e s we e used. Financial deepening was p oxied by
h ee indica o s namely bank deposi s, domes ic c edi o p i a e sec o , and b oad
money. he Panel co ec ed s anda d e o es ima es e ealed ha all i e inno a ion
indica o s signi ican ly inc eased domes ic c edi o he p i a e sec o . equally, and only
wi h he excep ion o mobile cellula subsc ip ions and secu e in e ne se e s ( o he
bank deposi model) & mobile phone subsc ip ions ( o he b oad money model),
inancial inno a ions signi ican ly inc eased inancial deepening in a ica. secondly, he
e ec o inancial deepening on consump ion expendi u e p oduced mixed esul s.
While domes ic c edi o he p i a e sec o signi ican ly inc eased he expendi u e, bank
deposi s subs an ially impeded he same sugges ing ha inancial deepening may no
always p omo e household consump ion. Based on he indings, i is appa en ha
a ican go e nmen s and he inancial sec o playe s can indeed le e age on he
p oli e a ion o inancial inno a ions in educing in o ma ion asymme y and boos ing
he access o and a o dabili y o inancial p oduc s. his widened p o ision o inancial
p oduc s, no ably c edi acili ies by he inancial ins i u ions p o ides a obus and
ce ain channel o op imizing household consump ion and subsequen ly economic
g ow h.
1. In oduc ion
he las wo decades ha e wi nessed apid echnological inno a ions which ha e massi ely ans o med
he global inancial sys em. in pa icula , and as obse ed by he Wo ld Bank (2020), he ib an
echnology-d i en inno a ions ha e enabled he p oli e a ion o no el inancial p oduc s, nume ous
deli e y channels, and he eme gence & de elopmen o new business models. Besides, hese echno-
logical inno a ions ha e p omp ed he eme gence o digi al inancial pla o ms which ha e subs an ially
augmen ed e iciency in inancial p oduc deli e y h ough inc eased pace, anspa ency, secu i y, and
accessibili y o ailo ed inancial se ices ac oss all segmen s o he popula ion. Resul an ly, inancial ins i-
u ions and mo e so banks ha e seized hese inno a i e oppo uni ies by no only in oducing new
p oduc s bu also expanding he exis ing ones o emain compe i i e in he inancial landscape.
he e is indeed a consensus in he li e a u e ha inancial inno a ion con ibu es o economic g ow h
by acili a ing capi al mobiliza ion, inancial in e media ion, capi al o ma ion, and gene ally he o e all
de elopmen o he inancial sys em (lae en e al., 2015; nazi e al., 2020). his has he consequen
e ec o inc easing inancial deepening hence s imula ing sMe inancing which is c i ical o
© 2024 he au ho (s). Published by in o ma uK Limi ed, ading as aylo & F ancis g oup
CONTACT Cyp ian amu abi [email protected] Depa men o economics, uni e si y o nai obi, nai obi, Kenya.
supplemen al da a o his a icle can be accessed online a h ps://doi.o g/10.1080/23311975.2024.2393740.
h ps://doi.o g/10.1080/23311975.2024.2393740
his is an open access a icle dis ibu ed unde he e ms o he C ea i e Commons a ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. he e ms on which his a icle has been
published allow he pos ing o he accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
ARTICLE HISTORY
Recei ed 13 Decembe
2023
Re ised 9 May 2024
accep ed 13 augus 2024
KEYWORDS
Financial inno a ions;
inancial deepening;
household consump ion
expendi u e; panel
co ec ed s anda d e o
model; a ica
SUBJECTS
economics; Finance;
De elopmen Policy
JEL CLASSIFICATION
g21; g28; g51
2 c. aMU aBi
ans o ma i e and sus ainable g ow h and social de elopmen in de eloping coun ies, and mo e pa -
icula ly, on he a ican con inen (Mo ei a, 2016; sanga & aziakpono, 2022).
ne e heless, i is wo isome o assume ha his pe cei ed inancial deepening (la gely isualized
h ough inc eased bank deposi s, domes ic c edi o he p i a e sec o , and b oad money) au oma ically
ansla es o inc eased consump ion. his calls o he need o in es iga e he link a he mac o-le el in
he de eloping economies’ con ex . i is also wo h no ing ha his nexus emains unexplo ed in he
a ican con ex and ha much o he p e ious li e a u e has only ocused on unde s anding he linkage
be ween inancial inno a ions and inancial deepening wi h no assessmen unde aken on he ul ima e
spill-o e e ec s on he consump ion le els a he mac o-le el. We, he e o e, en ich p io s udies on his
subjec by no only examining he impac o inancial inno a ions on inancial deepening bu also he
esul an e ec o inancial dep h on household consump ion expendi u e in 34 a ican coun ies o e
he pe iod 2012–2019. h ee di e en es ima ion app oaches a e employed in his s udy namely, he
O dina y leas squa es (Ols), Fixed e ec s (Fe), and he Panel co ec ed s anda d e o (Pcse) es ima-
o s. Unde s anding he channel h ough which inancial deepening con ibu es o consump ion is
in aluable o designing wel a e-o ien ed policies ha ensu e a balanced alue-c ea ion be ween he
p o ide s and consume s o inancial p oduc s.
no able inancial inno a ions ha ha e been de eloped and subsequen ly adop ed in he banking
space in he ecen pas include elec onic paymen sys ems, b anchless banking, and in e ne & mobile
banking. speci ic s iking examples o hese echnologically-enabled inno a i e p oduc s include MPesa,
Real ime g oss se lemen (R gs), Mobile elephone ne wo k (M n), PaYPal, au oma ed elle Machines
(a Ms), Poin o sale (POs) Machines, digi al mobile lending apps, and agency banking. he a ailabili y
o hese new- angled al e na i e inancial p oduc s has expanded c edi p o ision and signi ican ly
b idged he gap be ween inancial p o ide s and inancial consume s (Financial sec o Deepening, 2019).
ndung’u (2019) u he obse es ha banks ha e swi ly le e aged on he e olu ion o digi al inancial
pla o ms o no only manage mic o-accoun s bu also ex end inancial se ices o he o me ly unbanked
and unde se ed popula ion.
albei inancial inno a ion has momen ously ad anced inancial inclusion co e age in sub-saha an
a ica (ssa) and mo e gene ally in a ica, i emains no iceable ha ssa coun ies (cons i u ing a la ge
sample o ou s udy), s ill on a e age ha e a shallowe inancial sys em han o he de eloped egions
globally. acco ding o Wo ld Bank (2017), abou 20% o he popula ion has a bank accoun . his is ela-
i ely low compa ed o a simila p opo ion o 38% in he non-ad anced economies and 92% in he
de eloped economies. consequen ly, he numbe o a Ms & comme cial bank b anches o e e y 100,000
adul s in he ssa egion a e aged 6 and 5 espec i ely as compa ed o 68 and 20 o he high-income
coun ies.
he in e na ional Mone a y Fund (iMF) a ibu es he lowe inancial inclusion co e age index o com-
pa a i ely lesse inancial li e acy le els, huge in as uc u al de elopmen gaps, and la gely
unde -in es men (in e na ional Mone a y Fund, 2018). none heless, on a posi i e no e, mobile money
has exhibi ed inc edible p og ess wi h ega d o inancial se ice deli e y in ssa, wi h he egion cu -
en ly boas ing global leade ship in e ms o mobile money inno a ion, usage, and adop ion. in ac , ssa
assumes a leading posi ion globally ega ding he olume o mobile money ansac ions, ou le s & pe
capi a mobile money accoun s (in e na ional Mone a y Fund, 2018).
agains his backg ound, he e o e, we sough o examine he impac o inancial inno a ions on
inancial deepening in 34 a ican coun ies o e he pe iod 2012–2019 using he Panel co ec ed
s anda d e o (Pcse) es ima o . his pe iod cap u es he la es ans o ma i e inno a ions in he inancial
banking space in a ica. Mo e impo an ly, mos o he inno a ion indica o s a e uni o mly epo ed
ac oss he selec ed coun ies o e his pe iod. We con ibu e o he exis ing li e a u e on his ma e by
explo ing he missing link be ween he ealized inancial deepening and i s implica ions on household
consump ion. Mo e p ecisely, we a e in e es ed in knowing whe he he pe cei ed inancial deepening
ins iga ed by inancial inno a ions ac ually s ee s consump ion. We also en ich he s udy by p o iding
he di e en ia ed consump ion e ec om di e en inancial deepening measu es; a ea ha also
emains unexplo ed.
wo c i ical indings eme ged om ou s udy. Fi s , he Pcse es ima es e ealed ha all 5 inancial
inno a ion indica o s signi ican ly inc eased inancial deepening (p oxied by domes ic c edi o he
cOgen BUsiness & ManageMen 3
p i a e sec o ). equally, and only excep o mobile phone subsc ip ions and secu e in e ne se e s ( o
he bank deposi model) & mobile cellula subsc ip ions ( o he b oad money model), inancial inno a-
ions subs an ially inc eased inancial deepening in a ica. secondly, he e ec o inancial deepening on
consump ion expendi u e p oduced mixed esul s. While domes ic c edi o he p i a e sec o signi i-
can ly inc eased household consump ion expendi u e, bank deposi s subs an ially impeded he same
sugges ing ha inancial deepening may no always p omo e consump ion.
he emainde o his pape p oceeds as ollows. sec ion 1.1. b ie ly highligh s he implica ions o
household consump ion a an agg ega e le el. his is ollowed by a e iew o he ela ed li e a u e in
sec ion 2. in sec ion 3, he me hodology, da a, and a iables used a e discussed. sec ion 4 p esen s he
empi ical indings while sec ion 5 concludes he pape .
1.1. Implica ions o household consump ion
i is always p esumed ha inancial deepening leads o inc eased consump ion. howe e , he e is no
a emp o examine whe he his nexus ac ually holds in he a ican con ex . While s udies a he
mac o-le el a e conspicuously missing, he e is indeed limi ed li e a u e a he mic o-le el ying o
unco e his puzzle (see, o ins ance, li e al., 2020 o china; luo e al., 2022 o china; sa aswa i e al.,
2022 o indonesia). We add no el y o he li e a u e by examining his link a he mac o le el. We a gue
ha he pe cei ed posi i e impac o inancial deepening on consump ion may only hold bu condi ional
on some media ing ac o s no ably income o li ing s anda ds o people (p oxied by g oss Domes ic
P oduc (gDP) pe capi a) and emi ance in lows. We p oceed o es his hypo hesis a an agg ega e
le el in he a ican con ex . We also quan i y he di e en ia ed consump ion e ec om di e en inan-
cial deepening measu es; a ea ha also emains unexplo ed.
2. Li e a u e e iew
2.1. Theo e ical e iew
ea lie wo ks by schumpe e (1912) a gue ha inno a ions aking place in he inancial sec o in ol e
he in oduc ion o new p oduc s and echniques ha lead o be e inancial sys ems. hese inancial
sys ems a e cha ac e ized by inc eased co e age o se ice p o ision, inc eased a ie y o inancial p od-
uc s and se ices, e icien ins i u ions, a ailabili y o c edi o in es men , and imp o ed channels o
esou ce mobiliza ion. Fu he , he heo y asse s ha inancial inno a ion p o ides he much-needed
inancial in e media ion ha p omo es bo owe s’ capaci y o mobilize sa ings o in es men and, hus,
imp o ing he o e all pe o mance o he economy. Vas s udies on he inancial inno a ion- inancial
de elopmen nexus build on his schumpe e ian endogenous g ow h heo y. acco ding o king and
le ine (1993), inancial se ices a e i al in p omo ing inancial ac i i ies, aising he pace o weal h gen-
e a ion & spu ing inancial de elopmen in an economy. he e o e, no el ies in he p o ision o inancial
se ices a e impe a i e in enhancing inancial e iciency hence leading o inancial g ow h. Mo eo e ,
new inancial p oduc s no only augmen esou ce mobiliza ion h ough inc eased e iciency o paymen
sys ems bu also lowe in es men isks & speed up capi al c ea ion.
o explain he link be ween inancial inno a ions and inancial dep h, he heo y o inancial in e me-
dia ion becomes ex emely undamen al. he heo y sugges s ha inancial deepening enhances he
mobiliza ion and alloca i e e iciency o unds o en ep eneu ial and economic ac i i ies (allen &
san ome o, 1998; We ne , 2016).
in he mode n pe spec i e lens, Baya and ga ile ea (2018) posi ha inancial sec o expansion has-
ens c oss-coun y comme ce, weal h c ea ion & capi al accumula ion. Fu he , hunj a e al. (2018) a gue
ha inancial-sec o expansion plays a cen al ole in lowe ing he cos s associa ed wi h in o ma ion
asymme y and imp o ing esou ce mobiliza ion, hus, s imula ing economic p ospe i y. simila ly, asongu
e al. (2019) indica e ha inno a ions s emming om ic di usion dec ease in o ma ion asymme y,
hence, lowe ing loan p ices. consequen ly, his inc eases he amoun o loans ha inancial ins i u ions
can ex end o hei clien s. no ably, inancial inno a ions ha e been ound o s ee inancial deepening
h ough a ious channels such as in e ne banking, mobile banking, a Ms, b anch banking, in e ne -only
4 c. aMU aBi
banks, agency banking & he use o POs machines in emo e a eas as a lowe -cos al e na i e o he
usually common b anch banking. hese modali ies conside ably inc ease he a ailabili y and a o dabili y
o inancial se ices ac oss all segmen s in socie y by educing in e media ion & ansac ion cos s, geo-
g aphical/loca ional cons ain s, and gene al in o ma ion asymme y (ahn & lee, 2019; chen, 2020; cull
e al., 2018).
he pe inen ques ion, howe e , is whe he he inancial deepening ha esul s om inno a ions d i es
consump ion a an agg ega e le el. acco ding o Mille (1986), inancial inno a ion plays a c ucial ole in
educing inancial isks, lowe ing he cos o capi al, enhancing inancial in e media ion, and p omo ing
household wel a e. Fu he , le chenko (2005) posi s ha inancial inno a ions a e expec ed o ease con-
sume s’ income cons ain s by aiding e iciency in esou ce alloca ion while p omo ing in e - empo al
smoo hing o consump ion; which in u n inc eases consump ion demand. his s udy con ends ha i
would be wo isome o assume ha inancial deepening au oma ically ansla es o inc eased consump ion
hence he need o in es iga e he link a he mac o-le el in he de eloping economies’ con ex .
2.2. Empi ical e iew
2.2.1. Financial inno a ions and inancial deepening
Using panel da a o 43 a ican coun ies o he pe iod 2010–2019, sanga and aziakpono (2022) examine
he impac o echnological inno a ions (namely in o ma ion and communica ion echnology (ic ) in a-
s uc u e, mobile cellula subsc ip ions, secu e in e ne se e s, he numbe o a Ms & bank b anches on
inancial deepening. By employing he Pcse, ixed e ec s, and quan ile eg essions echniques, hei s udy
inds ha echnological inno a ions posi i ely in luence inancial deepening wi h ega d o banks’ mobi-
liza ion o deposi s and c edi alloca ion o small and Medium-sized en e p ises (sMes) i ms. addi ionally,
he echnological indica o s s ongly impac bank c edi o he p i a e sec o a highe quan iles in com-
pa ison o he lowe quan iles wi h simila esul s applicable o he numbe o bank b anches.
conce ning ic in as uc u e, se e al s udies also a i e a simila conjec u es. Fo ins ance, he s udy
by alshubi i e al. (2019) on he e ec o ic on he inancial de elopmen o 6 gul coope a ion council
coun ies e eals ha he e ec o b oadband on inancial de elopmen is signi ican ly highe compa ed
o he numbe o in e ne use s. in he s udy, inancial de elopmen is p oxied by bo h domes ic c edi
& b oad money supply as a ios o gDP. secondly, he analysis by edo e al. (2019) o he case o nige ia
and kenya o he pe iod 2000–2016 ea i ms ha in e ne adop ion signi ican ly inc eased inancial
de elopmen . Jus like in he s udy by alshubi i e al. (2019), his s udy also p oxied inancial de elop-
men by domes ic c edi o he p i a e sec o as a% o gDP. in an ex ended iew, co e ing 42 ssa
coun ies and by inco po a ing o he measu es o inancial de elopmen namely, bank asse s (as a% o
gDP), bank asse s (as a% o cen al bank asse s) & c edi om inancial ins i u ions (as a% o gDP),
Owusu-agyei e al. (2020) a i e a simila esul s using he pooled Ols echnique.
chien e al. (2020) employed he gene alized Me hod o Momen s (gMM) & panel smoo h ansi ion
eg ession on da a o 81 coun ies o e he pe iod 1990–2015 o analyze he impac o ic di usion on
inancial de elopmen . he esul s indica e ha in e ne and elephone adop ion inc ease inancial de el-
opmen in bo h de eloped & de eloping coun ies. howe e , mobile cellula subsc ip ions a e ound o
boos inancial de elopmen only in a ican coun ies. By analyzing panel da a o 162 banks in selec ed
a ican coun ies o he pe iod 2001–2011 u ilizing he gMM and quan ile eg essions, asongu e al.
(2019) es ablish ha ic di usion educes in o ma ion asymme y, lowe s loan p ices & inc eases he
amoun o loans. Using he in e ne , b oadband, mobile & he p opo ion o a Ms o b anches as mea-
su es o ic di usion, Del gaudio e al. (2021) es ablish ha ic posi i ely impac s banking pe o mance
in eu opean banks.
alawi e al. (2022) in es iga e he impac o inancial inno a ion and ins i u ional quali y on inancial
de elopmen in 17 eme ging ma ke s using da a o he pe iod 1990–2020. he Fully Modi ied O dina y
leas squa e (Ols) es ima es e eal ha he wo a iables signi ican ly con ibu e o inancial de elop-
men . Manasseh e al. (2023) examine he in luence o digi al inancial inno a ion on inancial sys em
de elopmen in common Ma ke o eas e n and sou he n a ica (cOMesa) coun ies o he pe iod
1997–2019. he s udy es ima es he Mean g oup (Mg), Pooled Mean g oup (PMg) & he Dynamic Fixed
e ec (DFe) models. Fu he , he dynamic gMM is used o check o he obus ness o he es ima es.
cOgen BUsiness & ManageMen 5
Digi al inancial inno a ion is ound o signi ican ly impac inancial sys em de elopmen in he long
e m. Mo e speci ically, whe eas a Ms, POs machines, mobile paymen s & banking signi ican ly inc ease
inancial sys em de elopmen in he long e m; mobile money and in e ne banking insigni ican ly de e -
mine inancial de elopmen . Fu he mo e, ins i u ional quali y is ound o conside ably and posi i ely
mode a e he a o emen ioned ela ionship.
nguena (2019) explo es he d i e s o mobile banking de elopmen in a ica using a sample o 49
ssa coun ies. U ilizing c oss-sec ional econome ic echniques, a posi i e nexus is es ablished be ween
he di e se p oxies o mobile banking & mobile banking de elopmen . no ably, human capi al de elop-
men , c edible mone a y policy, in as uc u al de elopmen , emi ances, u baniza ion, ade openness
&domes ic c edi access a e ound as he obus d i e s o mobile banking de elopmen .
con e sely, some s udies allude ha inancial deepening can be measu ed by he le el o inancial
inclusion and p oceed o demons a e ha inancial inno a ions p omo e he la e . Fo example, a om
e al. (2023) examined he in luence o inancial inno a ions, p ima ily mobile money on inancial inclu-
sion in a ica wi h he indings e ealing ha mobile money adop ion inc eased he inclusion le el.
2.2.2. Financial deepening and household consump ion: he missing link
a as o he empi ical li e a u e examines he link be ween inancial inno a ions and inancial deepen-
ing/ inancial sys em de elopmen as ex ensi ely elabo a ed abo e. equally, some li e a u e assesses he
e ec o inancial inno a ions on inancial inclusion (see o ins ance a om e al., 2023) and a es s o
he p esence o synonymy be ween inancial dep h and inclusion. On he o he hand, he e is a s and
o li e a u e ha inds a posi i e ela ionship be ween inancial inno a ions and economic g ow h
(Domehe e al., 2022; Misa i e al., 2021; nazi e al., 2020). gene ally, hese s udies posi ha inancial
inno a ions gene a e a posi i e e ec on inancial dep h and o inclusion h ough inc eased sa ing, bo -
owing, and in es men ac i i ies in he economy which ul ima ely ansla e o high economic g ow h.
albei his may be ue, he e is no a emp o examine whe he inancial deepening indeed implies
inc eased household consump ion in he a ican con ex . he e is scan iness in li e a u e in suppo o
he inancial deepening-household consump ion nexus. Fo example, luo e al. (2022) use da a om he
china Family Panel s udies and he digi al inclusi e inancial index o assess he link be ween Fin ech
inno a ion and household consump ion wi h he indings e ealing ha Fin ech inno a ion signi ican ly
p omo es household consump ion. his posi i e e ec is, howe e , ound o be signi ican ly media ed by
en ep eneu ship and inc eased income. sa aswa i e al. (2022) e alua ed he impac o inancial echnol-
ogy on household consump ion using he Pa ial adjus men Model (PaM) echnique in indonesia o e
he pe iod 1990–2017. he indings demons a e ha indonesian households’ consump ion unc ion
exhibi s s uc u al change b ough o h by inancial echnology de elopmen .
F om he e iewed li e a u e, i emains unknown as o whe he inancial deepening indeed suppo s
household consump ion. his s udy, he e o e, i s explo es he impac o inancial inno a ions on inan-
cial deepening. secondly, we examine he inancial deepening-household consump ion nexus in he mac o
con ex using he panel-co ec ed s anda d e o model on panel da a co e ing 34 a ican coun ies o
he pe iod 2012–2019. Mo e c ucially, we a e in e es ed in knowing whe he he inancial deepening ha
esul s om inno a ions ac ually d i es consump ion a an agg ega e le el; some hing ha is conspicu-
ously missing in li e a u e. Mo e p incipally, we employ bank deposi s, domes ic c edi o he p i a e sec-
o , and b oad money as a ios o gDP as measu es o inancial deepening o es wo key hypo heses:
H1: Financial inno a ions con ibu e o inancial deepening in a ica.
H2: Financial deepening inc eases household consump ion expendi u e in a ica.
3. Me hodology
3.1. Da a and choice o a iables
his s udy employs annual seconda y da a o he pe iod 2012–2019 co e ing 34 a ican coun ies. We
speci y his pe iod o enhance uni o mi y in ou analysis gi en ha in he pe iod p eceding 2012, a
6 c. aMU aBi
conside able numbe o coun ies epo ed missing alues on mos o he inancial inno a ion and deep-
ening indica o s. On he o he hand, in he pos -2019 pe iod, he da a is ye o be upda ed by he Wo ld
Bank o a numbe o he selec ed s udy coun ies.
Fi s and o emos , his s udy examines he impac o inancial inno a ions on inancial deepening. Fi e
inancial inno a ion indica o s a e adop ed and include he numbe o a Ms & bank b anches o e e y
100,000 people, mobile cellula subsc ip ions o e e y 100 inhabi an s, secu e in e ne se e s o e e y 1
million adul s, and he a ica in as uc u e De elopmen index (aiDi). he la e was de eloped by he
a ican De elopmen Bank (a DB) and measu es he ex en o in as uc u al de elopmen in a ican coun-
ies. i is a composi e measu e o elec ici y, anspo , ic , and wa e supply & sani a ion indexes (a ican
De elopmen Bank, 2022). Unlike mos s udies ha only ocus on he ic index, we a gue ha aiDi p o-
ides a mo e obus and b oade measu e o in as uc u al de elopmen gi en ha ic canno h i e in
he absence o i s enabling ac o s namely anspo and elec ici y. he es o he inno a ion indica o s
a e ob ained om he Wo ld Bank’s Wo ld De elopmen indica o s (WDi) da abase. hese inancial inno a-
ion indica o s ha e been widely used in he li e a u e wi h a majo i y o he s udies associa ing hem wi h
inc eased inancial dep h (see o ins ance alawi e al., 2022; Manasseh e al., 2023; sanga & aziakpono, 2022).
o measu e inancial deepening, 3 indica o s a e used. hey include bank deposi s, domes ic c edi o
he p i a e sec o , and b oad money (all as a ios o gDP). Ou choice o bank deposi s &domes ic c edi
o he p i a e sec o as p oxy measu es o inancial deepening is occasioned by he p e alence o banks’
dominance in he a ican inancial landscape (cihak e al., 2012). On he o he hand, b oad money as a
a io o gDP becomes a i al gauge o asce aining he inancial dep h-consump ion expendi u e nexus.
We inco po a e a numbe o con ol a iables in he s udy namely ade openness, gDP pe capi a,
Fo eign Di ec in es men (FDi), emi ances, and ins i u ional quali y. ade openness has been empi i-
cally ound o posi i ely mode a e he inancial inno a ion- inancial deepening nexus (nguena, 2019).
he a gumen he e is ha ade openness c ea es a ib an ade en i onmen suscep ible o ade isks
and as such, inancial deepening becomes ine i ably impe a i e in managing hese isks. equally, FDi and
emi ances (measu ed as a ios o gDP) & gDP pe capi a ha e been widely used as con ol a iables in
inancial inno a ion- inancial de elopmen s udies wi h as o he li e a u e inding a complemen a y
ole (ehigiamusoe e al., 2021; Misa i e al., 2021; nguena, 2019).
he ins i u ional quali y index is gene a ed by he P incipal componen analysis (Pca) echnique. o
cons uc he index, we employ 6 indexes om he Wo ldwide go e nance indica o s (Wgi) da abase
namely co up ion con ol, ule o law, poli ical s abili y, go e nmen e ec i eness, egula o y quali y,
and oice & accoun abili y. ins i u ional quali y has been ound o signi ican ly inc ease inancial deep-
ening (alawi e al., 2022; sanga & aziakpono, 2022). las ly, and mo e impo an ly, we explo e he e ec
o inancial deepening on household consump ion expendi u e a an agg ega e le el. o measu e con-
sump ion, we use da a on inal household consump ion expendi u e om he WDi da abase. in his
model, we media e he impac o inancial deepening on consump ion expendi u e by income le el
(p oxied by gDP pe capi a and emi ances).
3.2. Model speci ica ion
Fi s , o es ima e he impac o inancial inno a ions on inancial deepening, we speci y a gene al model
ha closely bo ows om ha o sanga and aziakpono (2022). We, howe e , modi y i o cap u e mo e
inno a ion indica o s and con ol a iables. he model akes he ollowing o m:
FD INOV CTR
i i i i i
=+ + ++
αδ θ µ ε
(1)
Whe e
FDi
is he inancial deepening o a coun y i a ime .in his s udy, h ee indica o s a e used o
measu e inancial deepening namely bank deposi s as a a io o gDP, domes ic c edi o he p i a e
sec o as a % o gDP, and b oad money as a a io o gDP. INOV is a ec o o he inancial inno a ion
indica o s while CTR ep esen s a ec o o con ol a iables empi ically es ablished o impac inancial
deepening (see able 1 o he a iables desc ip ion).
δθ
and a e he es imable popula ion pa ame e s.
µ
i
e e s o he unobse able coun y-speci ic he e ogenei y and is ime-in a ian while he idiosync a ic
e o e m is ep esen ed by
ε
i
.
cOgen BUsiness & ManageMen 7
secondly, we in es iga e he e ec o inancial deepening on household consump ion expendi u e.
he ollowing gene al equa ion is speci ied:
HFCE FD CTR
i i i i i
=+ + ++
βγ ω µ ε
(2)
Whe e
HFCEi
ep esen s he household inal consump ion expendi u e o a coun y i a ime . he es i-
mable popula ion pa ame e s a e ep esen ed by
γω
and espec i ely.
3.3. Choice o es ima ion echnique
Bo h equa ions 1 and 2 a e es ima ed using he Panel co ec ed s anda d e o (Pcse) es ima o . Fo sen-
si i i y analysis, we also complemen he Pcse model wi h he pooled O dina y leas squa es (Ols) and
panel ixed e ec s (Fe) es ima es. howe e , i is no ed ha hese models su e om possible endogenei y
o he eg esso s. speci ically, pooled Ols/Fe es ima o s end o gene a e upwa d/downwa d biased esul s
in he panel models (nickell, 1981). in his ega d, he e o e, he Pcse esul s o m he basis o he in e -
p e a ion o ou esul s. he Pcse models p o ide eliable hypo hesis es ing and unlike in he
ea lie -men ioned models, hey e ec i ely add ess he p oblems o se ial co ela ion, he e oscedas ici y &
c oss-sec ional dependence (Beck & ka z, 1995). equally, hey a e in ui i ely impo an in he con ex o ou
s udy gi en he ela i ely sho e panel da a ange. in li e a u e, a numbe o s udies ha e adop ed his
model in es ima ing he impac o echnological inno a ions on inancial deepening (i.e. sanga & aziakpono,
2022) and he ole o ins i u ional ac o s in explaining inancial deepening (i.e. gani & Rasul, 2020).
3.4. Va iables desc ip ion and measu emen
his is illus a ed in able 1.
3.5. Summa y s a is ics
hese a e shown in able 2.
Table 1. Va iable de ini ion and measu emen .
Va iable Desc ip ion and measu emen
Dependen a iable(s)
Households inal consump ion expendi u e
(HFCe)
he inal consump ion expendi u e by households and only encompasses he expendi u e
sha e on heal h, educa ion & housing obliga ions a e possible eimbu semen s. i is
measu ed in cu en usD bu loga i hmically ans o med in ou models. HFCe is he
eg essand in he inal model.
Bank deposi s (DeP) Measu ed by bank deposi s as a a io o gDP and p oxies inancial deepening in he i s
model.
Domes ic c edi o he p i a e sec o (CReD) he c edi ex ended by banks o he p i a e sec o as a % o gDP. i is a measu e o
inancial dep h and a eg essand in he second model.
B oad money as a % o gDP (BRoaD) i is exp essed as a a io o gDP and p oxies inancial deepening in he hi d model.
Main explana o y a iables
a ica in as uc u e de elopmen index (aiDi) i is a composi e measu e o elec ici y, anspo , iC , and wa e supply & sani a ion
indexes.
numbe o a Ms (a Ms) he numbe o a Ms o e e y 100,000 people.
numbe o bank b anches (BRanCHes) he numbe o bank b anches o e e y 100,000 people.
Mobile cellula subsc ip ions (MoBsuB) he numbe o mobile cellula subsc ip ions o e e y 100 inhabi an s.
secu e in e ne se e s (seCseR) he numbe o secu e in e ne se e s o e e y 1 million adul s. i is loga i hmically
ans o med in ou es ima ed models.
Con ol a iables
Fo eign di ec in es men (FDi) Measu ed by ne FDi in lows as a % o gDP.
gDP pe capi a (gDPPC) i is a measu e o economic pe o mance and gene ally he a e age li ing s anda ds o a
popula ion. i ’s exp essed in a na u al log.
Remi ances (ReM) he a io o gDP o all hose goods and o money ha is sen o he le -behind
households by mig an s wo king ab oad.
ade openness ( RDoPn) he sum o expo s and impo s as a a io o gDP.
ins i u ional Quali y index (ins Qua) an index measu ing he quali y o go e nance and is cons uc ed om 6 Wgi
ins i u ional indica o s (namely, co up ion con ol, ule o law, poli ical s abili y,
go e nmen e ec i eness, egula o y quali y, and oice & accoun abili y) using PCa.
Sou ce: au ho ’s desc ip ion based on he WDi, a DB, and Wgi da abases.
14 c. aMU aBi
pooled Ols, panel ixed e ec s, and he Panel co ec ed s anda d e o (Pcse) models. Mo e pa icula ly,
we we e in e es ed in knowing whe he he pe cei ed inancial deepening d i en by inancial inno a-
ions ac ually s ee ed consump ion.
Fi s , ou Pcse es ima es e ealed ha all he 5 inancial inno a ion indica o s signi ican ly inc eased
inancial deepening (p oxied by domes ic c edi o he p i a e sec o as a % o gDP). simila ly, excep
o mobile cellula subsc ip ions and secu e in e ne se e s ( o he bank deposi model) & mobile
phone subsc ip ions ( o he b oad money model), inancial inno a ions conside ably inc eased inancial
deepening in a ica.
We, he e o e, concluded ha a ican go e nmen s and inancial sec o playe s can indeed le e age
on he p oli e a ion o inancial inno a ions in educing in o ma ion asymme y and boos ing he access
o and a o dabili y o inancial p oduc s. o achie e his, inancial ins i u ions need o inc ease hei
in es men capaci y owa ds expanding he numbe o a Ms, bank b anches, and agency banking se -
ices. inc eased physical p esence coupled wi h wide ic co e age is pa amoun in building a ne wo k
o low-cos agen banking. consequen ly, his enhances bank-clien ela ionships, educing in o ma ion
asymme y and inc easing c edi o businesses. gi en he unde lying sunk cos s in ol ed, go e nmen s
and de elopmen pa ne s should suppo e o s made by he inancial ins i u ion playe s by inc easing
in as uc u al in es men s in in e ne se e s, elec ici y, and oad anspo connec i i y. his is d i en
by he s udy indings showing ha in as uc u al de elopmen has he e ec o accele a ing inancial
sys em de elopmen and consequen ly economic g ow h.
Table 6. he impac o inancial deepening on household inal consump ion expendi u e.
Pooled oLs Panel Fe PCse
Ln household inal
consump ion
expendi u e (1) (2) (3) (4) (5) (6) (7) (8) (9)
Bank deposi s (%
o gDP)
−0.005
(0.003)
0.0005
(0.0008)
−0.004*
(0.002)
Domes ic c edi o
he p i a e
sec o (% o
gDP)
0.012***
(0.002)
−0.003
(0.002)
0.015***
(0.002)
B oad money (% o
gDP)
−0.0004
(0.004)
−0.002
(0.004)
−0.006
(0.003)
FDi 0.052***
(0.014)
0.058***
(0.013)
0.052***
(0.012)
0.001
(0.002)
0.0007
(0.002)
0.001
(0.002)
0.002
(0.010)
0.004
(0.006)
−5.69e-05
(0.012)
Ln gDP pe capi a 1.283***
(0.104)
1.075***
(0.089)
1.178***
(0.109)
0.512***
(0.173)
0.432**
(0.164)
0.495***
(0.176)
1.017***
(0.084)
0.816***
(0.057)
1.048***
(0.087)
Remi ances as a %
o gDP
0.047***
(0.017)
0.061***
(0.016)
0.054***
(0.016)
−0.002
(0.013)
−0.008
(0.014)
−0.008
(0.013)
0.017
(0.013)
0.008
(0.007)
0.009
(0.013)
ade openness −0.034***
(0.003)
−0.037***
(0.003)
−0.035***
(0.003)
0.0002
(0.002)
−0.001
(0.001)
−0.0006
(0.002)
−0.023***
(0.003)
−0.022***
(0.002)
−0.022***
(0.003)
ins i u ional quali y
index
0.005
(0.064)
−0.127*
(0.076)
0.012
(0.073)
0.061
(0.072)
0.088
(0.074)
0.036
(0.066)
0.055
(0.046)
−0.198***
(0.058)
−0.0004
(0.039)
Cons an 14.88***
(0.750)
16.17***
(0.659)
15.65***
(0.769)
19.14***
(1.467)
20.00***
(1.341)
19.46***
(1.443)
16.54***
(0.532)
17.65***
(0.361)
16.32***
(0.583)
no. o obse a ions 268 261 269 268 261 269 268 261 269
R20.571 0.622 0.581 0.126 0.130 0.130 0.997 0.997 0.997
P ob > F/
P ob > Chi2
0.000 0.000 0.000 – – – 0.000 0.000 0.000
C oss-sec ional
dependence
(CD) es (p ob.
alue)
Ho: CD
Independence
a e age absolu e
Co ela ion
– – – 0.0000
0.426
0.0000
0.415
0.0000
0.427
–––
Rho’s coe icien – – – – – – 0.799
(0.674)
0.855
(0.696)
0.829
(0.687)
no. o coun ies 34 34 34 34 34 34 34 34 34
No e: Robus s anda d e o s (Models 1–6) and panel-co ec ed s anda d e o s (Models 7–9) in pa en hesis. ***p < 0.01; **p < 0.05; *p < 0.1.
No es: as a no e o cau ion, we acknowledge ha ou Fixed e ec s es ima es a e likely o be plagued by c oss-sec ional dependence p oblems
ac oss ou es ima ed models. We, he e o e, canno accu a ely assess hei eliabili y. he PCse es ima es which accoun o bo h au oco ela-
ion and he e oskedas ici y issues, hus, o m he basis o he in e p e a ion o ou esul s.
cOgen BUsiness & ManageMen 15
secondly, while domes ic c edi o he p i a e sec o signi ican ly inc eased household consump ion expen-
di u e, bank deposi s subs an ially impeded he same. his sugges ed ha inancial deepening may no au o-
ma ically ansla e o inc eased consump ion. in o he wo ds, he indings imply ha he sign o he ela ionship
is ac ually in o med by he ype o inancial deepening measu e adop ed. i also seems o sugges ha he
highe he sa ings by consume s (in he o m o bank deposi s) he less he cu en household consump ion
expendi u e. in ui i ely, his is p e y much sensible and implies a need o s iking a balance be ween sa ing
and consump ion o ealize a posi i e e ec o inancial inno a ions on o e all household consump ion
expendi u e. Fu he , o enhance inancial inno a ions and subsequen ly household consump ion, a ican
coun ies need o design policies ha p omo e inancial in eg a ion such as le y educ ion on elec onic
ansac ions. his is key in os e ing imely and con enien access o c edi acili ies a a o dable a es.
Finally, while his s udy a emp ed o shed ligh on he household consump ion expendi u e e ec o
inancial deepening, we acknowledge he lack o da a on mos o he inancial inno a ion and deepening
indices in he ea lie yea s which es ic s he s udy o a sho e pe iod. We a e also cognizan ha con-
sump ion expendi u e may a y ac oss he di e en household obliga ions such as heal h and educa ion.
howe e , due o da a limi a ions on hese disagg ega ed indica o s, we we e unable o examine hese
di e en ia ed e ec s. equally, da a limi a ion es ic s ou s udy o a sho e pe iod hence we a e unable o
isualize any coin eg a ion among he a iables. i also es ic s us om es ima ing ou models in dynamic
o m. Fu u e s udies should, he e o e, a emp o dynamically in es iga e he consump ion expendi u e
pa e n esponses o a ious inancial deepening measu es as disagg ega ed da a on hese indices becomes
a ailable. also, we acknowledge ha ixed e ec s es ima es a e likely o be plagued by c oss-sec ional
dependence p oblems hence s udies in ol ing sho e panels need o be cognizan o his limi a ion.
Acknowledgemen s
i am g a e ul o he 3 anonymous e e ees o hei insigh ul commen s which imp o ed his pape
ma kedly. i, howe e , ake ull esponsibili y o any e o s a ising om his s udy.
Au ho con ibu ions
Cyp ian Amu abi: concep ion and design; analysis and in e p e a ion o he da a; he d a ing o he pape ; c i ical
e ision o he wo k o in ellec ual con en ; and he inal app o al o he e sion o be published. he au ho is
solely accoun able o all aspec s o his esea ch pape .
Disclosu e s a emen
no po en ial con lic o in e es was epo ed by he au ho (s).
Funding
he au ho ecei ed no unding o his s udy.
Abou he au ho
Cyp ian Amu abi’s esea ch in e es s all wi hin he ield o labo & Financial economics, and econome ic Modelling.
ORCID
cyp ian amu abi h p://o cid.o g/0000-0003-4741-7738
Da a a ailabili y s a emen
he da a used o his s udy and he suppo ing s a a analyses do- iles ha e been p o ided as supplemen a y ma e ial
alongside he submission o his pape o any eplicabili y o esul s. he da a is eely and eadily accessible and was
16 c. aMU aBi
sou ced om h ee da abases namely he Wo ld Bank’s Wo ld De elopmen indica o s (WDi), Wo ldwide go e nance
indica o s (Wgi), and he a ica in as uc u e knowledge P og am da abases. equally, he consolida ed da a and he
analyses do- iles can be accessed online ia he Mendley Reposi o y po al a : h ps://doi.o g/10.17632/663c2bk9gy.1
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