Digital finance and income inequality in the economic community of the great lakes countries (CEPGL): a dynamic panel data analysis 2000–2024

Abstract

Digital finance is increasingly regarded as a tool for promoting more inclusive growth by expanding access to financial services and economic opportunities. However, its distributive effects may depend on infrastructure, financial inclusion and institutional quality. This article examines the impact of digital finance development on income inequality in the CEPGL countries—Democratic Republic of Congo, Rwanda and Burundi—over the period 2000-2024. The study uses the Gini index as the dependent variable and a composite digital finance development index as the main explanatory variable. The empirical strategy relies on a Panel ARDL approach, preceded by stationarity and Kao cointegration tests and complemented by cross-sectional dependence tests, comparisons between Mean Group, Pooled Mean Group and Dynamic Fixed Effects estimators, and the Dumitrescu-Hurlin causality test. Given the small number of countries, the reference model is selected according to the principle of econometric parsimony, leading to the adoption of the PMG estimator. The ARDL model results show that the ISFD has no statistically significant effect on income inequality: its short-run effect is negative but statistically insignificant, while no long-run coefficient (L.ISFD) is estimated in the selected specification. Short-run effects, however, remain limited and heterogeneous. The causality test confirms a significant causal relationship running from digital finance to income inequality. The hypothesis is therefore accepted with reservations. The study concludes that digital finance constitutes a complementary instrument for reducing inequality, whose effectiveness depends on the expansion of digital infrastructure, financial education, financial inclusion and institutional quality.