Financial innovation and the money demand function in selected African countries: does financial inclusion play a mediating role? Online publication date: Wed, 12-Feb-2025
by Olajide O. Oyadeyi
International Journal of Monetary Economics and Finance (IJMEF), Vol. 17, No. 6, 2024
Abstract: The paper explored the role of financial inclusion in the nexus between the demand for money and financial innovation. Previous studies ignored the role of financial inclusion within this nexus and the paper contributes to the literature in this regard. Annual data from 2004 to 2021 on 26 African countries were selected using the Two-Step System GMM method. The findings show that financial inclusion does not mediate the relationship between financial innovation and money demand. Since financial inclusion does not change the nexus between financial innovation and money demand, the research suggests using financial innovation on a huge scale to increase financial access, financial usage, and financial penetration - proxies for financial inclusion - to integrate the unbanked and underbanked into the formal economy. If these developments are to increase money demand, they must be accompanied by the wider availability of financial services at reduced transaction costs and improved service offerings.
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