Is Financial Innovation and Structural Transformation Friends or Enemies? Evidence from Sub-Saharan Africa

This research analyzes the impact of financial innovation on structural transformation in sub-Saharan Africa. While the transformation of productive structures remains a crucial challenge for the region’s sustainable development, the catalytic role of new financial technologies remains largely unexplored. Drawing on the theoretical frameworks of Lewis’s sectoral dualism and Schumpeter’s innovation, we model this impact through two key dimensions: the adoption of mobile banking services (process approach) and the development of digital finance infrastructure. The empirical analysis is conducted on a panel of 46 sub-Saharan African countries covering the period 2000-2020. To correct for heteroscedasticity and autocorrelation of the residuals, the estimations are performed using Indicator Least Squares (ILS) with robust standard errors (HAC). The results reveal that mobile banking and digital finance have a significant positive impact on labor productivity and GDP per capita, validating the leverage role of FinTech. However, the observed negative impact on GDP per employed person highlights a preferential reallocation towards a lowproductivity informal service sector, confirming a biased structural change process. Among the control variables, urbanization dynamics emerge as the most powerful driver of resource reallocation. These findings underscore the importance for policymakers of supporting the growth of FinTech with appropriate regulatory frameworks and increased interoperability to maximize its leverage on industrialization and economic diversification in the sub-region.

Keywords:Financial innovation; Digital finance; Structural transformation; Indicator Least Squares (ILS); Sub-Saharan Africa