Cashless Policy, Financial Inclusion, and Economic Growth in Nigeria

Abstract

Given that these measures are essential components of Nigeria's digital-finance goal, this study looks at the combined impact of the country's cashless policy and financial inclusion on economic growth. In order to provide a better understanding of how digital payment systems and inclusive finance contribute to long-term economic performance, this research integrates these factors under a single empirical framework, whereas earlier studies have mostly evaluated them independently. The World Bank's Development Indicators (2023) and the Central Bank of Nigeria's Annual Statistical Reports are the sources of the annual time series data used in the research, which consists of 14 observations from 2009 to 2023. To capture the combined impact of electronic payment channels, such as POS transactions, mobile transfers, and ATM usage, the study uses Principal Component Analysis to create a composite cashless-policy indicator. The Fully Modified Ordinary Least Squares (FMOLS) method is used to evaluate the long-term relationship between real GDP, cashless policy, financial inclusion, exchange rate, inflation, and interest rate after annual time-series data are analyzed using unit root and cointegration tests. The results demonstrate that the cashless-policy index significantly boosts economic development, suggesting that advancements in digital payment infrastructure and usage encourage economic activity. Growth is also positively impacted by financial inclusion, albeit this effect depends on the extent and caliber of financial participation. The control variables mostly exhibit the predicted behavior, with inflation acting as a dampening factor and mixed results from the currency rate and interest rate. Overall, the findings imply that Nigeria's growth trajectory can be strengthened by a well-coordinated strategy that promotes inclusive financial services and fortifies digital payments. To improve underprivileged populations' access to financial services, the report suggests targeted policies, increased financial literacy, and consistent investment in digital finance infrastructure.