Interaction Effect of Financial Inclusion and Institutional Quality on Living Standard in Sub-Saharan Africa

Abstract

The effects of financial inclusion and institutional quality on living standard in developing countries are documented in the empirical literature but results are inconclusive. This study examines the interaction effect of financial inclusion and institutional quality on living standard in sub-Saharan Africa. Using panel data on 45 Sub-Saharan African countries from 2004 to 2021, the study employed the two-step system Generalized Method of Moments for the analysis while quantile regression was deployed to assess the reliability of the GMM estimations. Two interaction variables (control of corruption interacting with number of ATMs, and regulatory quality interacting with number of ATMs) were used. The empirical results indicate that the interaction between control of corruption and number of ATMs have a significant and negative effect on living standard; while the interaction between regulatory quality and the number of ATMs have a significant positive effect on living standard in sub-Saharan Africa. The results are robust to the alternative estimation technique employed. The study therefore, advocates that governments in various Sub-Saharan African countries should initiate and implement measures aimed at curtailing corruption and improve regulatory quality in order to enhance financial service inclusivity and through that improve the living standard in the region.