Knowledge Economy and Financial Development in Developing Countries: Evidence from a Panel Autoregressive Distributed-Lag (ARDL) Approach

Boniface Ngah Epo (), Younous Fozoudine Tapche Ndam () and Ambiana Mireille Abiala ()
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Boniface Ngah Epo: University of Yaoundé II
Younous Fozoudine Tapche Ndam: University of Yaoundé II
Ambiana Mireille Abiala: University of Yaoundé II

Journal of the Knowledge Economy, 2024, vol. 15, issue 4, No 107, 18412-18466

Abstract: Abstract Using the four World Bank’s Knowledge Economy (KE) pillars, the paper analyses their effect on financial development (FD) in sixteen lower-income, forty-two lower middle-income and thirty-five upper middle-income developing countries. This study covers data from 1996 to 2019 and employs a Pooled Mean Group (PMG) Panel ARDL estimation technique. Empirical results demonstrate that KE pillars (level of education, ICT, innovation landscape and institutional regime) have a positive and significant effect on the long-run financial development in all three income groups. The estimated long run elasticities were highest in the upper middle-income countries, except for the pillar capturing institutional quality. The results are robust we used domestic credit to private sector as a percentage of GDP as an alternative measure of FD and a cross-sectionally augmented autoregressive distributed lag (CS-ARDL) modelling approach that is robust for time dynamics, cross-sectional heterogeneity and cross-sectional dependence. The feedback effects between KE indices and FD are confirmed by the Dumitrescu and Hurlin (Economic Modelling, 29(4), 1450–1460, 2012) Granger Causality test.

Keywords: Financial development; Knowledge economy; Panel ARDL; O40; G00; P00 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-024-01768-5

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