Digital Innovation and Informal Sector Development: The Mediating Roles of Business Performance, Financial Inclusion and Spatial Infrastructure

Digital innovation has become an important driver of business transformation, financial inclusion, productivity, and market expansion in developing economies. The informal sector remains a major source of employment and income generation, yet many informal enterprises continue to face challenges such as limited access to finance, poor infrastructure, weak record-keeping, low productivity, and restricted market reach. This study examined the impact of digital innovation on informal sector development in Nigeria. The study adopted a quantitative survey research design using questionnaire data obtained from 300 informal sector operators. Digital innovation was measured through indicators such as mobile banking, point-of-sale usage, social media marketing, e-commerce usage, mobile applications, digital payment systems, internet access, and digital record-keeping. Informal sector development was measured through business growth, income improvement, customer expansion, productivity, market access, financial inclusion, employment creation, and gradual formalization. Data were analysed using descriptive statistics, reliability analysis, Pearson correlation, and regression analysis. The findings showed that digital innovation adoption had a strong positive relationship with informal sector development. Regression results further revealed that digital innovation significantly improved business performance, financial inclusion, infrastructure-related outcomes, and economic outcomes. However, challenges such as high data costs, poor electricity supply, weak network connectivity, cyber fraud, limited digital skills, and inadequate government support negatively affected digital adoption. The study concludes that digital innovation can significantly promote informal sector development when supported by inclusive digital infrastructure, affordable internet access, digital literacy, cybersecurity protection, financial inclusion policies, and flexible regulatory frameworks.