Does insecurity influence the financial inclusion-economic growth nexus in Africa? Insight from dynamic panel approach

Purpose Despite notable progress in promoting financial inclusion (FI) to drive economic growth (EG), Africa still lags behind other regions due to structural challenges, including inadequate infrastructure, regulatory barriers and low financial literacy, amongst others. More importantly, rising insecurity (INS) in the form of conflicts, terrorism, kidnapping, communal violence, etc., poses significant threats to the effectiveness of FI in fostering EG via disruption of financial systems, displacement of people, destruction of infrastructure and erosion of investor confidence. This study explores the influence of INS on the FI-EG nexus, particularly in Africa. Design/methodology/approach To assess the role of INS on the FI-EG nexus, this research employs the system-Generalized Method of Moments to analyse panel data for 39 African economies, further grouped into Lower Middle Income and Lower Income countries, during the 2004–2023 period. In addition, the study adopts the Principal Component Analysis (i.e. PCA) to construct the FI index. Findings The results portray that FI impacts EG positively (0.088/0.066), while rising INS erodes the growth-benefits of FI (−0.150/−0.184) in Africa in the full sample. This empirical evidence is consistent across different income groups. Moreover, agricultural output expansion promotes EG, but excess money supply impacts EG adversely. Research limitations/implications The study unravels the significance of ensuring greater security to reap the growth-benefits of FI in Africa. Originality/value The research is the first to explore the role of INS (proxied by military expenditure) on the FI-EG nexus in Africa.