Financial Innovation and Money Demand: Evidence from Sub‐Saharan Africa

Abstract While the effect of financial innovation on money demand has been widely researched in industrialised countries, because of its major role in monetary policy, few studies have focused on developing countries. This is surprising given the considerable growth in financial innovation in Sub‐Saharan Africa in recent years and its potential implications for developing country macroeconomic policy. This paper investigates the development of financial innovation and its impact on money demand in the region using panel data estimation techniques for 34 countries between 1980 and 2013. The results indicate that there is a negative relationship between financial innovation and money demand. This implies that financial innovation plays a crucial role in explaining money demand in Sub‐Saharan Africa and given innovations such as mobile money in the region this can have important implications for future policy design.