ICT Diffusion, Financial Development and Economic Growth: New Evidence from Low and Lower Middle-Income Countries
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ICT Diffusion, Financial Development and Economic Growth: New Evidence from Low and Lower Middle-Income Countries Anupam Das 1 & Murshed Chowdhury 2 & Sariah Seaborn 1
Received: 20 November 2015 / Accepted: 12 May 2016 # Springer Science+Business Media New York 2016
Abstract This paper examines the joint effects of Information and Communications Technology (ICT) and financial development on per capita economic growth for a sample of 43 developing countries from 2000 to 2014. Further, we test the same hypothesis after grouping countries according to their income level (i.e. low-income countries (LICs) and lower middle-income countries (LMICs)). We address the issue of endogeneity by applying the system generalized method of moments (GMM) technique. Our findings are threefold: first, when all developing countries are included in the same panel, on average, ICT diffusion has a positive and significant impact on economic growth but financial development does not. Second, the joint effect of ICT and finance is positive, suggesting that the direct effect of ICT diffusion on economic growth in developing countries is realized because of development of the financial sector. Third, the ICT-finance joint effect is found to be positive in LICs but insignificant in LMICs. Our findings have important policy implications for resource constrained developing countries, which often find it difficult to allocate additional resources to the development of the ICT sector. Keywords ICT diffusion . Financial development . Developing countries . System GMM . Economic growth JEL Classification D83 . C26 . E51 . O47
* Anupam Das [email protected]
1
Department of Economics, Justice, and Policy Studies, Mount Royal University, 4825 Mount Royal Gate SW, Calgary, AB, Canada
2
Department of Business and Economics, Algoma University, 1520 Queen Street East, Sault Ste. Marie, ON, Canada
J Knowl Econ
Introduction The relationship between information and communications technology (ICT) diffusion and economic growth has been an emerging area of investigation in recent years. International organizations, including the United Nations and World Bank, have been emphasising the growth impacts of ICT in developing countries. In addition to its immediate effect on GDP and income, employment opportunities in the ICT sector have a multiplier effect in developing economies (UNDESA, 2012). In a recent report, the World Bank (2011) argues that, in developing countries, ICT is the biggest driving force behind economic growth, serving as an engine of job creation, particularly among youth and women, and has also promoted trade and competitiveness through exports. Although we generally expect a positive correlation between ICT diffusion and economic growth, the existing literature does not necessarily conform to this stereotyped relationship. Nevertheless, in recent decades, developing countries have been mobilizing resources to build ICT infrastructure. This shows why the number of internet and mobile users is rising significantly in the last two decades
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