Unveiling the Asymmetric Impact of Digital Financial Inclusion on Micro-Enterprise Performance: Evidence from Emerging Economies and the Moderating Role of Institutional Quality

Abstract

This research explores the asymmetric effect of digital financial inclusion (DFI) on the performance of micro-enterprises in emerging markets, taking into account the moderating effect of institutional quality. Drawing upon a rich dataset that covers a range of indicators of DFI and micro-enterprise performance, this study uses a strong econometric methodology that incorporates regression analysis and interaction effects to investigate the intricate connections. The evidence confirms a more detailed picture, such that whereas access to digital financial services in general benefits micro-enterprises, the quantitative impact differs considerably depending on the relevant DFI dimension and the underlying institutional context. In particular, the research confirms that improved institutional quality serves to enhance the positive effects of DFI on micro-enterprise profitability and expansion, whereas poor institutional systems can frustrate or even reverse these gains. These findings highlight the need for complementing policies that foster both digital financial inclusion and good governance in order to ensure that the potential of DFI is fully leveraged for economic development in developing economies. The paper concludes by offering policy suggestions for strengthening institutional capacity and fitting DFI programs to the peculiar needs and circumstances of micro-enterprises.