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

Author

Listed:
  • Luc Jacolin

    (FERDI - Fondation pour les Etudes et Recherches sur le Développement International)

  • Joseph Keneck Massil

    (Cemotev - Centre d'études sur la mondialisation, les conflits, les territoires et les vulnérabilités - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines)

  • Alphonse Noah

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates the impact of mobile financial services ‐ MFS (mobile money, and mobile credit and savings) on the informal sector using a sample of 101 emerging and developing countries over the period 2000‐15. Using both fixed effects estimator and propensity score matching methods, we show that the adoption of MFS significantly decreases the size of the informal sector. The magnitude of these effects is large, the reduction of the informal sector reaching 1 to 4 points, depending on the estimator. This effect is likely to increase as the services benefit wider segments of the population. 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. Our results were confirmed by robustness checks, using alternative measure of informal sector and MFS, sets of control variables, and estimation approaches. 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.

Suggested Citation

  • Luc Jacolin & Joseph Keneck Massil & Alphonse Noah, 2021. "Informal Sector and Mobile Financial Services in Emerging and Developing Countries: Does Financial Innovation Matter?," Post-Print hal-03104350, HAL.
    • Handle: RePEc:hal:journl:hal-03104350
    DOI: 10.1111/twec.13093
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    Cited by:

    1. KOUAKOU, Dorgyles C.M. & YEO, Kolotioloma I.H., 2023. "Can innovation reduce the size of the informal economy? Econometric evidence from 138 countries," MPRA Paper 119264, University Library of Munich, Germany.
    2. Atangana Ondoa, Henri & Ambombo Bella, Genevieve Lareine & Mbenga Bindop, Kunz Modeste, 2023. "Mobile money, family assistance and welfare in Cameroon," Telecommunications Policy, Elsevier, vol. 47(1).
    3. Joël Cariolle & Camille da Piedade, 2023. "Digital connectedness and exports upgrading: Is sub‐Saharan Africa catching up?," The World Economy, Wiley Blackwell, vol. 46(11), pages 3325-3344, November.
    4. Jolevski, Filip & Nayyar, Gaurav & Pleninger, Regina & Yu, Shu, 2025. "Spillovers in ICT adoption from formal to informal firms: Evidence from Zambia," Journal of Development Economics, Elsevier, vol. 177(C).
    5. Désiré Avom & Chrysost Bangake & Hermann Ndoya, 2023. "Do financial innovations improve financial inclusion? Evidence from mobile money adoption in Africa," Post-Print hal-04125452, HAL.
    6. Lv, Jiamin & Li, Shi & Zhu, Mengying & Huang, Wenli, 2024. "Can the digital economy development limit the size of the informal economy? A nonlinear analysis based on China's provincial panel data," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 896-921.
    7. Coulibaly, Yacouba, 2024. "Resource-backed loans and ecological efficiency of human development: Evidence from African countries," Ecological Economics, Elsevier, vol. 224(C).
    8. Kere, Safilidin & Zongo, Amara, 2023. "Digital technologies and intra-African trade," International Economics, Elsevier, vol. 173(C), pages 359-383.
    9. Ablam Estel Apeti & Jean-Louis Combes & Eyah Denise Edoh, 2023. "Entrepreneurship in developing countries: can mobile money play a role?," Working Papers hal-04081304, HAL.
    10. Apeti, Ablam Estel & Edoh, Eyah Denise, 2023. "Tax revenue and mobile money in developing countries," Journal of Development Economics, Elsevier, vol. 161(C).
    11. Sami Ur Rahman & Faisal Faisal & Adnan Ali, 2023. "Financial Development and Shadow Economy: A Bibliometric Analysis Using the Scopus Database (1985–2021)," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(3), pages 2238-2265, September.
    12. John Sebastian Tobar-Cruz & Carlos Alberto Ruiz-Martínez, 2025. "Formalización y crecimiento de micronegocios en Colombia: relación con el acceso al crédito desde una perspectiva formal/informal, de género y regional," Borradores de Economia 1302, Banco de la Republica de Colombia.
    13. Adewale Hassan, 2024. "Mobile Financial Services and the Shadow Economy in Southern African Countries: Does Regulatory Quality Matter?," IJFS, MDPI, vol. 12(4), pages 1-20, November.
    14. Sébastien Galanti & Ҫiğdem Yilmaz Ӧzsoy, 2022. "Digital finance, development, and climate change," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Statistics for Sustainable Finance, volume 56, Bank for International Settlements.
    15. Ofori, Isaac K. & Quaidoo, Christopher & Ofori, Pamela E., 2021. "What Drives Financial Sector Development in Africa? Insights from Machine Learning," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    16. Melingui Bate Adalbert Abraham Ghislain, 2022. "Does the diffusion of information and communication technologies affect the shadow economy in Africa?," African Development Review, African Development Bank, vol. 34(4), pages 513-526, December.
    17. Dorgyles C. M. Kouakou & Kolotioloma I. H. Yéo, 2025. "Can Innovation Reduce the Size of the Informal Economy?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 67(3), pages 623-681, September.
    18. Md. Jahidul Islam & Shahedul Hasan & Ather Yeasir Fahim, 2024. "Influence of consumption values on adoption of cashless society in emerging economies: the mediating effect of cashless readiness," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 29(4), pages 1432-1444, December.
    19. Ablam Estel Apeti, 2022. "Household welfare in the digital age: Assessing the effect of mobile money on household consumption volatility in developing countries," Post-Print hal-03819779, HAL.
    20. Xinxin Ma, 2023. "Internet usage and the income gap between self‐employed individuals and employees: Evidence from China," Review of Development Economics, Wiley Blackwell, vol. 27(3), pages 1509-1536, August.
    21. Apeti, Ablam Estel, 2023. "Household welfare in the digital age: Assessing the effect of mobile money on household consumption volatility in developing countries," World Development, Elsevier, vol. 161(C).
    22. Olivier R de Bandt & Luc Jacolin & Thibault Lemaire, 2021. "Climate Change in Developing Countries: Global Warming Effects, Transmission Channels and Adaptation Policies," Working Papers hal-03948704, HAL.
    23. Avom, Désiré & Bangaké, Chrysost & Ndoya, Hermann, 2023. "Do financial innovations improve financial inclusion? Evidence from mobile money adoption in Africa," Technological Forecasting and Social Change, Elsevier, vol. 190(C).

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