TITLE:
The Nexus between Digital Finance, Information and Communication Technology (ICT), and Financial Development in Developing Countries
AUTHORS:
Melkamu Dereje
KEYWORDS:
Digital Finance, ICT, Financial Development, System GMM, Developing Countries
JOURNAL NAME:
Open Journal of Business and Management,
Vol.12 No.6,
November
8,
2024
ABSTRACT: In recent years, digital finance, particularly mobile banking, has become a key driver for financial sector development in developing nations by making financial services more accessible, affordable, efficient, and convenient, especially for underserved and unbanked population in remote areas. Therefore, this study aims to investigate the relationship between digital finance, ICT and financial development across 60 developing countries from the period 2004 to 2022. The study used system Generalized Methods of Moments (sysGMM) estimation approach. In addition, AR(2) and Hansen tests were applied to check the absence of second-order serial correlation and validity of instrument variables respectively. The regression results reveal that key factors, including number of mobile banking transactions, information communication technology, and their interaction, have a positive and significant impact on financial development in developing countries. Additionally, control variables such as foreign direct investment, trade openness, GDP per capita, government expenditure, and political stability also contribute positively to financial development. In contrast, inflation negatively affects the development of financial sector in developing nations. Based on the findings, governments and financial institutions are suggested to collaboratively work and invest more on digital finance platforms and ICT infrastructure to enhance the accessibility, quality, security, and efficiency of virtual financial services like mobile banking. This approach would support the effective integration of underserved and remote populations into the formal financial system, thereby fostering financial development in emerging economies.