Business inclusion and economic welfare: The role of private sector credit

The paper seeks to examine the interactive role of private sector credit in explaining the relationship between business inclusion and economic welfare in Africa. First, it intends to investigate the interrelationship between business inclusion and economic welfare and how both business inclusion and private sector credit drive economic welfare. Given that this is a complex relationship, the study employs the seemingly unrelated regression and bootstrap quantile regression in a panel of 52 economies in Africa, over the period 2006-2018. We find that ease of doing business and business accounts have a positive and significant effect on economic welfare. The results show that economic welfare promotes business inclusion. We show that countries that expand more credit to the private sector have better incentives to promote ease of doing business. Moreover, businesses that have access to credit have a positive effect on economic welfare that benefits the poor indirectly. We find that ease of doing business and domestic credit to private sector have a positive and significant impact on economic welfare at higher quantile levels. We find evidence to support that ease of doing business substitutes private sector credit to drive economic welfare while account held for business purposes complements private sector credit to drive economic welfare. We show that the marginal effect of business inclusion on economic welfare is greater in countries that expand more credit to the private sector.