Financial technology and economic growth nexus in the East African community states

Abstract

Purpose – This paper aims to examine the causation linking financial technology to economic growth in the East African Community states from 1997 to 2019. Design/methodology/approach – Autoregressive distributed lag is used. Gross domestic product per capita proxies economic growth, automated teller machines, point of sale, debit card ownership and mobile banking measure financial technology. Findings – The results unveil a significant relationship between financial technology and economic growth. The findings show bidirectional causality between automated teller machine and economic growth, with unidirectional causation from economic growth to point of sales and internet banking, mobile banking and government effectiveness to economic growth. The error correction term is negatively significant, demonstrating a long-term convergence between Fintech measures and economic growth. Research limitations/implications – The governments should effectively enact and implement policies that protect investments in financial technologies to boost economic growth in the East African Community countries. The government should reduce taxes on financial technology equipment and related services. The use of automated teller machine, debit card ownership and internet banking should be encouraged through cashless transactions. Financial institutions should adopt cashless operation policies to encourage the use of financial technologies. Originality/value – Research results on the bond between financial technology and economic growth are not conclusive. These studies demonstrate that technological innovations are double edged-swords, with both positive and negative sides. The results are conflicting; some reveal positive relationships, while others show negative links. Hence, research is required to fill the lacuna.

Keywords

• Financial technology
• Economic growth
• ATM
• EAC
• Panel Autoregressive Distributed Lag (PARDL)