Policy Uncertainty, Digital Economy, and Financial Development: Reassessing the Innovation Dividend in African Economies

Author(s):

 Jones Odei-Mensah

jones.odei-mensah@wits.ac.za
2025-12-03 14:43:16

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Abstract

This paper examines how policy uncertainty conditions the digital economy-financial development-innovation nexus across 29 African economies (2011-2023). Despite significant progress in digitalisation and financial deepening, innovation performance remains heterogeneous. Using dynamic system GMM estimation, we find that digitalisation (β = 0.728) and financial development (β = 8.748) independently promote innovation, with positive complementarity (β = 4.653). However, policy uncertainty substantially weakens this synergy (triple interaction: β = ?8.155,p < 0.05). A one-standard-deviation increase in policy uncertainty erodes approximately 65% of the joint digital-finance innovation dividend. These findings highlight macroeconomic stability as a critical prerequisite for realising Africa’s technological transformation

Keywords
Digital economy; Financial development; Policy uncertainty; Innovation, Africa

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