The impact of informality on inclusive growth in Sub-Saharan Africa : does financial inclusion matter?

Rising poverty levels in Sub-Saharan Africa requires a better understanding of inclusive growth determinants to develop effective policy responses. Using panel data from 44 Sub-Saharan African countries for the period 1990-2018, we compute measures of inclusive growth based on gender and the rural-urban divide. We account for endogeneity, cross-sectional dependence, and heteroscedasticity, and estimate an inclusive growth model using the instrumental variable generalized method of moments (IV-GMM) estimator. The empirical evidence indicates that the impact of informality on inclusive growth depends on the measure of informality and inclusiveness. Our results show that financial inclusion exhibits an inverted-U-shaped relationship with inclusive growth. Also, we find that the moderating role of financial inclusion in the informality-inclusive growth nexus is mixed. Our results are robust to alternative model specifications and highlight the importance of financial inclusion and informality in influencing inclusive growth in Sub-Saharan Africa.