This study aims to examine the effect of digital finance on the nonlinear relationship between financial development and economic wealth in 54 African economies from 2004 to 2023.
This study uses the dynamic system generalized method of moments to analyze the interrelationship between financial development, digital finance and economic wealth.
The results confirm that initial financial development enhances economic wealth. However, beyond the thresholds of 0.41 and 1.21, additional financial development reduces economic wealth. Digital finance has a positive influence on both financial development and economic wealth. Additionally, an increase in the levels of digital finance systems amplifies the positive linear effect of financial development on economic wealth.
While this focus provides valuable insights into the role of digital finance in African economic growth, the findings may not fully capture the complexities and dynamics present in other global markets.
Policymakers should implement regulatory measures to establish an optimal level of financial development that maximizes economic wealth. Furthermore, fostering digital financial technology within a well-developed financial sector is essential for sustained economic growth in Africa.
This paper contributes to the literature by offering actionable recommendations for policymakers, emphasizing the need to strengthen financial institutions and infrastructure to fully harness the benefits of digital finance. The findings can inform policy development aimed at fostering inclusive economic growth through digital financial systems.
