The impact of ICT on financial development: Empirical evidence from the Gulf Cooperation Council countries

Abstract

The globalization revolution has led to many countries considering advancing technology, which has led to electronic finance becoming an important aspect in all economic and financial sectors. This study aims to investigate the impact of information and communication technology (ICT) on the financial development index of six Gulf Cooperation Council (GCC) countries from the period 2000 to 2016. The results are reported in terms of two main ICT variables: fixed broadband and Internet users as a proxy of ICT and domestic credit to private sector as a percentage of gross domestic product (GDP) and broad money supply/GDP as two proxies of the financial development index. This methodology used fixed effects (FEs) estimations, and the results show that an increase in fixed broadband has a statistically significant and positive effect on both proxies of financial development. In terms of domestic credit as a percentage of the GDP proxy, the positive effects of ICT (broadband) are greater than the one from Internet users. A 1% increase in fixed broadband leads to approximately 2% increase in financial development, but the Internet user variable resulted in about a 0.09% increase. The other money supply proxy increased by 0.40% when ICT increased by 1%. Additionally, money supply increased by 0.11% when the Internet user ratio increased by 1% .To control for the endogeneity problem, the study used a generalized method of moments estimator, and the results confirm the previous results of the FE. Moreover, the negative impact of economic growth and natural resources was found to be valid and significant, while urbanization and trade openness were found to significantly and positively affect both financial development proxies. The main conclusion of the study is that GCC countries should take action in building an effective joint information system to help construct efficient economic sectors.