Analysis of Finance--Growth Nexus in Developing Economies: Does the Quality of Leadership and Technology Matter?

Abstract

This article investigates the effects of national leadership and telecommunication technology on the finance–growth nexus using balanced panel data from 50 developing countries for the 1997–2017. The study employs a set of nonstationary panel data approaches to investigate the long-run relationships between the variables of interest. The findings show that there is a long-term relationship between the variables wherein financial development, telecommunication technology, and quality of national leadership were found to have significant positive impact on economic growth in developing countries. This implies that financial development, telecommunication technology, and the quality of national leadership are important factors for promoting growth. Moreover, the results suggest that the effects of financial development on economic growth is contingent on the quality of national leadership and the sophistication of telecommunication technology in developing countries. The interaction term and marginal effects computed are positive and significant at all levels of telecommunication technology as well as on the quality of national leadership. This means that both the quality of national leadership and telecommunication technology have large direct and indirect positive impacts on economic growth in developing countries, and that financial development contributes more significantly and robustly to economic growth when telecommunication technology is sophisticated and national leadership is of high quality. Keywords: economic growth, financial development, ICT, panel data