Financial Inclusion, Women Empowerment, and Informal Economy in Africa

ABSTRACT In this study, we investigate the effect of women's empowerment on the informal economy in Africa. It also examines the role of financial inclusion in the nexus between women's empowerment and the informal economy. The study is based on a panel data estimation of 39 African nations between 2004 and 2020. These data were analyzed via the panel estimation based on Driscoll and Kraay's robust standard error and Instrumental Variable generalized method of moment (IV‐GMM). The results reveal that gender political inclusion reduces participation in the informal economy. In contrast, gender economic inclusion promotes participation. However, financial inclusion moderates the relationship, implying that women's empowerment through financial inclusion decreases the size of the informal sector. The results from the regional analysis show that the direct effect of financial inclusion is not significant in West Africa, but its interactive effect on women's empowerment reduces the informal economy. Financial inclusion complements women's empowerment in reducing the size of the informal economy in North Africa, Central Africa, and Southern Africa. The study highlights that the interactive effects of financial inclusion and women's empowerment on the informal economy are heterogeneous across the income and regional levels and robust enough to carry out sensitivity checks.