ICT Diffusion, Financial Development and Economic Growth: New Evidence from Low and Lower Middle-Income Countries

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.