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Abstract
This study empirically establishes the causal relationship between financial innovation and economic growth in the SADC. Using an Autoregressive Distributed Lag (ARDL) Model, estimated by Pooled Mean Group and Dynamic Fixed Effects, the study finds that financial innovation generally has a positive relationship with economic growth in the long run for the SADC. Introducing Mobile Banking props up the role of financial innovation in growth in the SADC. The long-run estimations show mixed effects on proxy variables other than Mobile Banking, strengthening the importance of having appropriate measures for financial innovation. Panel Granger causality tests establish that there is no causality, in any direction, between financial innovation and growth, both in the short and long run.
Notes
1 Caution, however, needs to be taken with the variable given that mobile penetration does not necessarily translate into Mobile Banking. In most SADC countries, mobile phone services were introduced in the early 1990s and finance was only integrated in mobile phones after 2011.
2 Financial innovation is neither limited to the invention of new financial instruments nor to innovation by financial institutions (Laeven et al. 2012). Financial innovation also includes more mundane financial improvements, such as the new financial reporting procedures, improvements in data processing and credit scoring that enhanced the ability of banks to evaluate borrowers, and the adoption and upgrading of private credit bureaus. As such, the choice of variables that captures financial innovation needs to be all inclusive, beyond those that depict product innovation only (Laeven et al. 2012).