The non-linear relationship between ICT diffusion and financial development

Abstract

This research investigates the linear and non-linear effects of information and communication technology (ICT) diffusion on financial development for 81 countries over the period 1990–2015 by employing the generalized-momentum method (GMM) and panel smooth transition regression (PSTR). Some main conclusions are presented as follows. First, comparing the different effects of ICT on financial development between the high-income group and the middle- & low-income group, telephone and Internet positively influences both groups’ financial development, whereas mobile cellular causes a negative effect in high-income countries, but a positive effect in middle- & low-income countries. Second, the growth of the Internet and telephones raises the financial development in all regions, while mobile cellular growth positively affects financial development only in Africa. Finally, strong evidence appears that the PSTR models capture the smooth non-linear effects of ICT diffusion on financial development, in which the effect of ICT diffusion on financial development is positive in the lower level of ICT diffusion, but turns negative in the higher level of ICT diffusion.