Digitisation, Financial Development and Economic Growth in Emerging Economies.

Abstract

The belief that digitisation directly contributes to promoting financial development and economic growth has occupied much of development policy discourse of most governments and international development organisations over the past decades. It was therefore necessary to: examine the effect of digitisation on financial development; examine the sensitivity of the indicators of digitisation to financial development; and explore the effect of digitisation and financial development on economic growth. Secondary data on 30 emerging economies and between the period of 2004 to 2017 from World Bank’s World Development Indicators (WDI) database and the International Telecommunications Union were used in the estimations. The Generalised Method of Moments (GMM) estimations were used to analyse the data. On the determinants of financial development, digitisation was found to have a statistically significant effect. Results on the sensitivity of digitisation indicators to financial development show that fixed broadband subscriptions per 100 people and mobile cellular telephone subscribers per 100 inhabitants, as key proxies of digitisation, are very sensitive to financial development. With regards to the effect of digitisation and financial development on economic growth, the study found a significant positive result. There is evidence of a strong mediating role of financial development in a digitisation-economic growth nexus. The study recommends that emerging economies need to increase their investment in technology development, formulate effective policies on Information Communication Technology (ICT) that will encourage the use of ICT.