The Long-Run Relation among Financial Development, Technology and Economic Growth: A Panel Cointegration Study
Andrey Zagorchev, Youngsoo Bae, Geraldo Vasconcellos
Department of Economics, Perella Department of Finance
College of Business and Economics
Abstract
This paper examines the dynamic relationship among financial development, ICT, and economic growth in a panel cointegration framework using 86 sample countries. The long-run relationships are identified using panel unit root tests, panel cointegration analysis, and panel dynamic OLS. The ICT indicators are proxied by the number of personal computers, Internet users, and mobile phone subscribers. Our first finding is that personal computers and GDP per capita increase the liquidity, size, and activity of financial systems. Second, we find that the Internet and GDP per capita improve the liquidity, size, stock trading, and activity of financial markets. Third, we show that mobile phones and GDP per capita stimulate liquidity, financial market size, and expansion of credit. The results provide clear support for an equilibrium relation among financial development, ICT networks, and economic growth. The results provide strong evidence supporting the hypothesis that there is a long-run relation among GDP growth, ICT network indicators, and financial system development. The coefficients of the cointegrating relations are estimated with a panel DOLS methodology, which resolves the endogeneity problem of the regressors. The results point out that the relationships have a long-run nature, which implies that ICT indicators along with GDP per capita affect the progress of financial markets and shape their overall development. Unless favorable conditions for building larger and more solid ICT networks and promoting economic growth are established, long-term development of financial markets is not viable. The robustness and integrity of personal computers, the Internet, and mobile phones determine the speed, reliability, and costs of financial transactions, which are critical for the performance of financial markets. An additional implication of the study is that the results are more general in character rather than very country specific. The building of ICT networks and transactional systems using advanced technologies will enhance the liquidity, size, and activity of financial markets across the globe. Lastly, improving the information networks to serve the demands of the markets is vital to strengthen countries overall competitiveness and their levels of financial development.
Bio: Andrey Zagorchev is a fourth-year PhD candidate in the College of Business and Economics working under Professor Geraldo Vasconcellos. He received his Master of Business Administration with a concentration in Finance from Wright State University. His research interests include Financial Development, Corporate Governance, Corporate Finance, International Finance, Applied Microeconometrics, and Applied Macroeconometrics. Andrey is currently on the Warren-York Fellowship at the College of Business and Economics. Upon completion of his degree, he plans to seek a research position in academia.
