Digital Economy, Institutional Quality and Inclusive Growth in Selected African Countries

Abstract

This study investigates how institutional quality and the digital economy influence inclusive growth in a selected African nation between 2000 and 2022. The study uses the dynamic system Generalized Method of Moments (SGMM) to capture the dynamic aspect of inclusive growth while also accounting for any endogeneity difficulties. The research divides the nations into three income brackets: lower income (LI), upper middle income (UMI), and lower middle income (LMI). This allows for better understanding of the implications of the digital economy and institutional quality in various economic situations. The Digital Economy Index (DEI), the Institutional Quality Index (InsQ), Gross Capital Formation (GCF), Foreign Direct Investment (FDI), and Official Development Assistance (ODA) were among the key variables examined. Additional approaches for verifying the model's validity and durability included panel unit root tests, cointegration tests, and diagnostic tests such as the Arellano-Bond and Hansen test. The findings revealed that institutional quality and the digital economy both make important contributions to inclusive growth, with the advantages being greater in higher-income countries. However, the effect of the digital economy varies, with Upper Middle-Income (UMI) countries experiencing the greatest significances. Furthermore, institutional quality is critical for driving growth, particularly in UMI countries. The study concludes that enhancing institutional quality and digital infrastructure is critical to promoting inclusive growth in Africa. Digital infrastructure expenditures are critical for LI countries. While UMI nations should concentrate on fostering creative settings, LMI countries should prioritize institutional improvements. These guidelines are vital for promoting equitable, long-term economic growth that transcends social class.