From Connectivity to Creativity: Financial Development as a Catalyst of Africa’s Digital Economy-Innovation Nexus

Author(s):

 Sylvester Senyo Horvey¹ Jones Odei-Mensah²

sylvester.horvey@wits.ac.za
2025-12-03 13:31:59

37 Downloads 104 Views

Abstract

Innovation has emerged as an essential conduit for driving productivity, competitiveness and sustainability. However, its outcomes may not be fully realised without appropriate digital and financial systems. Considering this and motivated by SDG 9 and the African Digital Transformation Agenda 2063, this study contributes to knowledge by exploring the direct and synergistic effects of the digital economy and financial development on innovation across 29 African countries between 2011-2021 using the generalised method of moments estimation technique. Results show that the digital economy fosters innovation in Africa. Similarly, the individual components of the digital economy exert a positive influence on innovation, implying that innovation in Africa is stimulated by the combined effect of several digital elements that operate collectively to improve communication, efficiency, and the diffusion of knowledge. Additionally, the findings elucidate that well-developed financial systems are crucial for innovation, underscoring the pivotal role of financial development in the innovative ecosystem. Furthermore, the study presents that the contribution of the digital economy to innovation is fueled by financial development. Thus, financial development amplifies the impact of the digital economy on innovation, suggesting that integrated strategies targeted at developing the financial market and digital systems could lead to greater innovation outcomes. Hence, the study recommends that policies aimed at improving the digital economy and financial development should be addressed concurrently to foster innovation. Also, there is a need to expand access to investment, funding, and digital financial services to assist individuals and organizations in transforming digital potential into innovative outcomes.

Keywords
Africa, Digital economy, Financial Development, Innovation

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