Investigating the direct and indirect effects of Information and Communication Technology on economic growth in the emerging economies: role of financial development, foreign direct investment, innovation, and institutional quality

ABSTRACT

The growing demand for digitalization in different economic sectors has garnered considerable attention from researchers to explore the effects of Information and Communication Technology (ICT) on economic growth. In this study, we explore the direct and indirect effects of ICT on economic growth, through its interaction with institutional quality, financial development, research and development (R&D) expenditures, and foreign direct investment (FDI), for 13 emerging economies from 2000 to 2020. We find that ICT use has a significantly positive effect on economic growth. It is found that the interaction effects of ICT with financial development and R&D expenditures are favorable to economic growth, whereas ICT does not act synergistically with institutional quality and FDI. This implies that the emerging economies should increase R&D expenditures on ICT services and increase digitalization of the financial sector, along with advancing their ICT infrastructure, strengthening the institutional quality, and encouraging more FDI inflows to maintain their growth momentum.

Abbreviations: ICT: nformation and Communication Technology; IMD: International Institute for Management Development; SDGs: Sustainable Development Goals; OECD: Organization for Economic Cooperation and Development; SAARC: South Asian Association for Regional Cooperation; SSA: Sub-Saharan Africa; MNCs: Multinational Companies; MENA: Middle East and North Africa; UNESCO: United Nations Educational, Scientific and Cultural Organization; ITU: International Telecommunication Union; IIEP: International Institute for Educational Planning; MSCI: Morgan Stanley Capital International; WDI: World Development Indicator; R&D: Research and Development; FD: Financial development; FDI: Foreign Direct Investment; IUIT: Individuals Using Internet; MBCS: Mobile Cellular Subscriptions; TO: Trade Openness; IQ: Institutional Quality

KEYWORDS:

• ICT
• economic growth
• financial development
• FDI
• innovation
• institutional quality

Acknowledgements

The authors duly acknowledge the data sources made available by the World Bank, the International Telecommunication Union (ITU) and the Heritage Foundation. The authors would also like to thank colleagues and friends for their constant support. No funding was provided during any part of the research.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

Data used in the analysis was compiled from the following secondary sources: https://databank.worldbank.org/source/world-development-indicators, https://www.itu.int/itu-d/sites/statistics/, https://www.heritage.org/index/.

Notes

1 According to the Morgan Stanley Capital International (MSCI), Emerging economies generally are the countries having rapid GDP growth and have a competitive marketplace giving wider opportunities to make investment. Developing countries, on the other hand, do not have the same level of economic growth, having lower per capita income and low economic security, while developed countries are those, which have already achieved high level of per capita income, export diversification and desegregation into the international financial system.

2 SAARC stands for ‘South Asian Association for Regional Cooperation,’ which is a group of eight countries namely, ‘Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.’

3 MENA is the acronym for ‘Middle East and North Africa’ countries, which is a group of 21 countries.

4 SSA stands for Sub Saharan African countries, referring to countries in Africa, south of the Sahara.

5 Economic growth refers to the monetary growth of a country in a particular period of time, generally measured with real GDP per capita income of that country.

6 Financial development can be described as a combination of depth, accessibility, and efficiency of financial institutions and markets to provide effective financial services (Svirydzenka, 2016).

7 According to Schumpeter (1942), innovation is the process of devising new ideas or things, which helps to increase the productivity of the economy.

8 Foreign Direct Investment can be defined as the cross-border investments made by an individual or a company in any type of productive assets located in another country.

9 Trade openness can be defined as the degree to which a country is engaged in international trade. It is generally measured as the sum of exports and imports of a country to the total gross domestic product.

Additional information

Notes on contributors

Biswanath Behera

Biswanath Behera is currently working as a Ph.D. research scholar in the Humanities and Social Sciences Department at the National Institute of Technology Rourkela, Odisha, India, under the supervision of Dr. Narayan Sethi. He has publications in reputed journals like Economic and Political Weekly, Sustainable Development (Wiley) and Environment, Development and Sustainability (Springer).

Anasuya Haldar

Anasuya Haldar is currently working as a Ph.D. research scholar in the Humanities and Social Sciences Department at the National Institute of Technology Rourkela, Odisha, India, under the supervision of Dr. Narayan Sethi. She has good number of publications in reputed journals like Economic Analysis and Policy, Journal of Cleaner Production, Renewable and Sustainable Energy Reviews etc.

Narayan Sethi

Dr. Narayan Sethi is Professor in the Humanities and Social Sciences Department at the National Institute of Technology Rourkela, Odisha, India. He is also currently appointed as the Head of the Department. He has 14 years of teaching experience and also serving as the associate editors in Heliyon, Business and Economics Section (Elsevier), and SN Business & Economics (Springer).