The Role of Information and Communication Technologies on Financial Development and Economic Growth: PLS-SEM Approach

Abstract

The purpose of this paper is to explore the role of ICT diffusion on financial development (FD) and economic growth (EG) by using the PLS-SEM method. The sample size consists of data from 158 countries for the 2015-2020 time period. Test results indicate that ICT diffusion has positive and substantial direct effects on both FD and EG. A one-unit increase could lead to a 0.836 unit increase in FD and a 0.437 unit increase in EG. Test results show that Internet and telephone usage have a similar substantial effect on FD, while Internet usage has a greater effect on EG than telephone usage, as a one-unit increase in Internet usage could cause an increase of 0.509 units in EG, but a one-unit increase in telephone usage could cause an increase of 0.200 units in EG. Lastly, the findings of this paper support the causality running from FD to EG and the moderating role of FD between ICT constructs and EG. Thereby, the novelty of this study is that it examines the relationship between ICT diffusion (in addition to Internet and telephone use), FD, and EG concurrently using the PLS-SEM method in a large data set and finds robust empirical results supporting the theory.