Financial deepening and inclusive growth in West Africa: evidence from dynamic and heterogeneous panel estimators

Abstract Purpose This study examines the effect of financial deepening on inclusive growth in West Africa and evaluates the role of institutional quality in shaping the finance–inclusive growth relationship. Methodology A balanced panel data for 15 West African countries covering the period 2000–2023 are utilized. Inclusive growth and financial deepening are measured using composite indices constructed through principal component analysis (PCA). The empirical analysis combines system generalized method of moments (System-GMM), cross-sectionally augmented mean group (CCEMG), and augmented mean group (AMG) estimators to address endogeneity, cross-sectional dependence, slope heterogeneity, and unobserved common factors. Findings The results indicate that the effect of financial deepening on inclusive growth is not robust across estimation techniques. Although a significant effect is observed under the dynamic specification, the relationship becomes statistically insignificant after accounting for cross-sectional dependence and heterogeneous country responses. Inflation exerts a negative influence on inclusive growth, while foreign direct investment and control of corruption exhibit positive but statistically insignificant effects under the heterogeneous estimators. Policy implications The results suggest that financial sector expansion alone may be insufficient to promote inclusive growth. Policies aimed at strengthening financial inclusion, improving macroeconomic stability, and enhancing institutional effectiveness are required to ensure that the benefits of financial development are broadly shared. Originality The study contributes to the literature by employing a multidimensional measure of inclusive growth and a complementary estimation framework that jointly addresses endogeneity, cross-sectional dependence, and slope heterogeneity.