STATE FRAGILITY, INCLUSIVE GROWTH, AND FINANCIAL INCLUSION: NEW EVIDENCE FROM AFRICAN COUNTRIES.
Date
2026
Authors
Joseph Keneck-Massil
Alphonse Noah
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
Fragile states account for a disproportionate share of global poverty and are projected to host 60 per cent of the world’s poor by 2030, yet the mechanisms by which policy interventions can mitigate fragility’s developmental costs remain poorly understood. This paper investigates whether financial inclusion moderates the adverse effects of state fragility on inclusive growth in Africa. Drawing on panel data for 40 African economies over 2006–2024 and employing the two-step system GMM estimator, we find that state fragility significantly depresses inclusive growth, while financial inclusion exerts a nearly offsetting positive effect in the long run. Critically, financial inclusion moderates fragility’s adverse impact: beyond a threshold of 0.36 on the normalised financial inclusion index, fragility’s growth-suppressing effect is fully neutralised. Decomposing financial inclusion into penetration, availability, and usage reveals that active engagement with financial services drives this moderation more powerfully than mere account ownership or infrastructure presence. These findings are robust to alternative measures of inclusive growth and income-level heterogeneity. The results suggest that expanding financial inclusion, particularly through digital finance and usage-oriented interventions, constitutes a powerful instrument for mitigating the developmental costs of fragility in Africa.