Informal Sector and Mobile Financial Services in Developing Countries: Does Financial Innovation Matter?

29 Pages Posted: 30 May 2019

See all articles by Luc Jacolin

Luc Jacolin

Banque de France

Keneck Massil Joseph

Paris-X, Nanterre-la Défense

Alphonse Noah

Banque de France

Date Written: May 2019

Abstract

This paper investigates the impact of mobile financial services – MFS (mobile money, and mobile credit and savings) on the informal sector. Using both parametric and non-parametric methods on panel data from 101 emerging and developing countries over the period 2000-15, we find that MFS negatively affect the size of the informal sector. According to estimates derived from propensity score matching, MFS adoption decreases the informal sector size in a range of 2.4 – 4.3 percentage points of GDP. These formalization effects may stem from different possible transmission channels: improvement in credit access, increase in the productivity/profitability of informal firms attenuating subsistence constraints typical of entrepreneurship in the informal sector, as well as possible induced growth of firms already in the formal sector. The robustness of these results is supported by the use of an alternative estimation approach (instrumental variables). These findings lay the groundwork for the scarce literature on the macroeconomic impact of mobile financial services, a major dimension of the growing drive towards economic digitalization.

Keywords: Mobile financial services, Mobile money, Financial innovation, Digitalization, Informal sector, Developing countries

JEL Classification: C26, E26, O33, G29, L96

Suggested Citation

Jacolin, Luc and Massil Joseph, Keneck and Noah, Alphonse, Informal Sector and Mobile Financial Services in Developing Countries: Does Financial Innovation Matter? (May 2019). Banque de France Working Paper, May 2019, WP #721 . Available at SSRN: https://ssrn.com/abstract=3396046 or http://dx.doi.org/10.2139/ssrn.3396046

Luc Jacolin (Contact Author)

Banque de France ( email )

Paris
France

Keneck Massil Joseph

Paris-X, Nanterre-la Défense ( email )

Paris
France
33 (0) 1 40 97 59 07 (Phone)
33 (0) 1 40 97 41 98 (Fax)

HOME PAGE: http://economix.fr

Alphonse Noah

Banque de France ( email )

Paris
France

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