ICT diffusion, financial development, and economic growth: An international cross-country analysis

• Published in: Economic modelling Vol. 94; pp. 662 - 671
• Main Authors: Cheng, Chih-Yang, Chien, Mei-Se, Lee, Chien-Chiang
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-01-2021
• Subjects: Dynamic panel GMM; Economic growth; Financial development; ICT diffusion; ICT diffusion; Economic growth; C23; Financial development; Dynamic panel GMM; O11; O33
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2020.02.008

The purpose of this paper is to explore the relationship between financial development, information and communication technologies (ICT) diffusion, and economic growth by considering the interlinkage of finance and ICT. To capture the generalized effect of financial development on economic growth, we set up a broad index of financial development by employing principal component analysis. Based on panel data covering 72 countries from 2000 to 2015, the empirical results after applying dynamic GMM estimation with panel data can be generalized as the following. First, regardless of the national income level, the empirical results show that financial development is always unfavorable for economic growth, but this negative effect is greater in high-income countries. Second, ICT diffusion can improve economic growth in high-income countries, but the effect is ambiguous in middle & low-income countries. In middle & low-income countries, only mobile growth can raise economic growth, whereas increasing Internet or secure Internet servers cannot. Finally, the interaction effects between ICT and financial development are positive in both income-level countries, implying the interaction effects of ICT and finance can reduce the negative effects of financial development, but the effects are only significant for high-income countries.
•Explore how ICT diffusion and financial development affect economic growth.•Set up a broad index of financial development by employing principal component analysis.•The impact of financial development on economic growth is consistently negative.•ICT diffusion can improve economic growth in high-income countries.•The interaction effects of ICT and finance can reduce the negative effects of financial development.