The interaction between smart technology and financial development on economic growth in developing countries

Abstract

The aim of this study was to investigate the interaction between smart technology and financial development on economic growth in selected developing countries. Given the simultaneous importance of technological infrastructure and financial system efficiency in the growth process, this study attempted to examine the direct and interactive relationship between these two factors within an econometric framework. The study was applied in terms of purpose and quantitative in terms of method and based on secondary data. Panel data related to fifteen developing countries that are members of OPEC and the Middle East were collected for the period under study. The dependent variable of the study was GDP per capita as an indicator of economic growth. The independent variables included the financial development index and the smart technology index, and to control for macroeconomic effects, the inflation rate and the degree of trade openness were also included in the model. The smart technology index was constructed using principal component analysis and based on four related variables. To examine the long-term relationships between the variables, a panel cointegration test was conducted and after confirming the existence of a long-term relationship, the model was estimated using FMOLS and DOLS methods. The results showed that both smart technology and financial development have a positive and significant effect on economic growth. Also, the coefficient of the interaction variable of these two factors was positive and significant, indicating their complementary role in the economic growth process. In addition, inflation had a negative and significant effect on economic growth, while the effect of trade was positive but insignificant. The results of the causality test also showed that there is a dynamic causal relationship between the main variables. Overall, the findings showed that the synergy between financial development and smart technology can be considered by policymakers as one of the important paths to promote economic growth in developing countries.