The mediating role of institutional quality in the relationship between digital infrastructure and exchange rate management efficiency in Sub-Saharan Africa

This study investigates whether institutional quality mediates the relationship between digital infrastructure and exchange rate management efficiency in Sub-Saharan African (SSA) countries from 1995 to 2023. While prior research establishes that information and communication technology (ICT) reduces the growth penalty from exchange rate volatility, the mechanism remains unidentified. This study proposes and tests a mediation hypothesis: digital infrastructure is associated with stronger institutional quality, which in turn is associated with more efficient exchange rate management. Using System GMM, bias-corrected LSDVC, Driscoll–Kraay, and panel threshold models, the study finds: (i) a positive and statistically significant direct association between digital infrastructure and exchange rate management efficiency (coefficient = 0.284, p < 0 . 01 ); (ii) institutional quality accounts for approximately 34% of this total association (indirect effect = 0.096, p < 0 . 01 ); and (iii) the association between digital infrastructure and ERME is only statistically significant when institutional quality exceeds critical thresholds (e.g., rule of law index > −0.52). These findings are consistent with the view that digital infrastructure and institutional quality interact in shaping macroeconomic resilience. For SSA policymakers, the results suggest that digital investments without simultaneous institutional reforms may have limited stabilization benefits in weak institutional environments. The study contributes to the literature on digital transformation, exchange rate management, and institutional economics by testing a specific mediation mechanism and identifying minimum institutional conditions for policy effectiveness.