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Digital innovation and financial access for small and medium-sized enterprises in a currency union

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  • Kame Babilla, Thierry U.

Abstract

This paper studies how digital innovation affects small and medium-sized enterprises’ financial access and productivity growth in a currency union with an incomplete credit market. Theoretically, while the effects of inclusive banking are ambiguous, digital financial innovation’s impact on financial access is yet to be fully explored. Using quarterly data from the West African Monetary Union over the period 1986Q2–20221Q1, we estimated a dynamic general equilibrium framework that disentangles digital financial inclusion from inclusive banking and features heterogeneity among firms. We found that digital innovation solves credit discrepancies among firms beyond inclusive banking. Digital innovation enhances small and medium-sized enterprises’ financial access by alleviating financial frictions arising from collateral and borrowing constraints. Digital financial inclusion amplifies the propagation of financial mechanisms into small and medium-sized enterprises’ productivity expansion that spills over throughout the currency union. The efficiency effects explain why digital financial inclusion enables better SMEs’ financial access than inclusive banking.

Suggested Citation

  • Kame Babilla, Thierry U., 2023. "Digital innovation and financial access for small and medium-sized enterprises in a currency union," Economic Modelling, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:ecmode:v:120:y:2023:i:c:s0264999322004199
    DOI: 10.1016/j.econmod.2022.106182
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    More about this item

    Keywords

    Digital innovation; Financial access; Small and medium-size enterprises; Digital financial inclusion; Currency union;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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