City Research Online

Abstract

The remarkable growth of mobile money observed among developing countries in the last two decades, has enabled extension of basic formal financial services to the unbanked population in predominantly cash-based economies. This development has been credited for its contribution to financial inclusion and stabilization of rural incomes through remittances, but little has been done to study its impact through purchase of goods and services. We expand the framework for analysing the impact of mobile money by building three new Keynesian DSGE models with features to investigate how it affects the economy through the primary and secondary income channels. We also apply the ARDL bounds test approach to empirically study the impact of mobile money on income velocity of circulation in Tanzania, Kenya and Uganda. Our DSGE models enable us to predict that mobile money will have overall positive benefits to the economy and that the rural will take disproportionately larger share of the benefits. The primary income channel transmits the benefits of real and policy shocks evenly to all rural households through increase in wages, while the secondary income channel delivers higher benefits to the recipients of remittances in the rural. With regard to monetary policy the DSGE models show that mobile money integrates the rural economy more into the national economy, thus demanding relatively more aggressive policy reaction to real shocks, under the mobile money scenario. The empirical estimations reveal statistically significant positive relationship between mobile money and the income velocity of circulation, which points to the need for central banks to review money supply downwards to avoid inflationary outcomes. The increase in velocity also impairs the ability of governments to raise seigniorage, but on the other side, mobile money lends itself as an instrument of improving efficiency in revenue collection, therefore, governments need to embrace it.

Publication Type:	Thesis (Doctoral)
Subjects:	B Philosophy. Psychology. Religion > B Philosophy (General) H Social Sciences > HB Economic Theory H Social Sciences > HC Economic History and Conditions H Social Sciences > HN Social history and conditions. Social problems. Social reform
Departments:	Doctoral Theses School of Policy & Global Affairs > Economics School of Policy & Global Affairs > School of Policy & Global Affairs Doctoral Theses

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