Inclusive business, private sector credit and economic welfare: evidence from Africa

Abstract

PurposeThis paper seeks to examine the interrelationship between inclusive business, private sector credit and economic welfare in Africa.Design/methodology/approachThe study uses the seemingly unrelated regression, system generalized method of moments and bootstrap quantile regression in a panel of 54 economies in Africa, over the period 2006–2020.FindingsThe authors show that countries that provide more credit to the private sector have better incentives to enhance the ease of doing business. The authors find that ease of doing business and domestic credit to the private sector have a positive and significant effect on economic welfare at higher quantile levels. The authors find that ease of doing business substitutes private sector credit to boost economic welfare, while business account complements private sector credit to boost economic welfare. The authors show that the marginal effect of inclusive business on economic welfare is greater in countries that provide more credit to the private sector.Practical implicationsThe implication is that countries that focus on developing their private sector (through credit expansion) should be able to encourage or facilitate the inclusion of businesses to achieve a sustainable economic welfare.Social implicationsThe implication is that policymakers should be able to develop their business environment through inclusive financing so as to build business confidence in the society.Originality/valueThe paper examines the interrelationship between inclusive business, private sector credit and economic welfare in Africa.