Digital payments, informality and economic growth

Ana Aguilar, Jon Frost, Rafael Guerra, Steven Kamin and Alexandre Tombini

No 1196, BIS Working Papers from Bank for International Settlements

Abstract: We examine the relationship between digital payment innovation, economic growth and informal activities in 101 economies over 2014–19. Following the economic growth literature, panel regressions relate growth rates of GDP per capita, total factor productivity (TFP) and the share of informal sector employment to lagged levels of these variables, the extent of digital payments use and various controls for endogeneity. We find that a one-percentage point increase in digital payments use is associated with increases in the growth of GDP per capita of 0.10 percentage points over a two-year period, and a decline in the share of informal sector employment of 0.06 percentage points over a two-year period. Insofar as the reported share of the population making digital payments ranges nearly from 0 to 100 percent, this is substantial. Digital payments do not appear to be significantly associated with rises in TFP, once controlling for general measures of digitalisation and government effectiveness, but they are linked to greater financial inclusion and credit access. Our results reinforce the case for government policies to encourage digital payments and, as complementary factors, access to the financial sector and information technology.

Keywords: digital innovation; informal economy; productivity; economic growth (search for similar items in EconPapers)
JEL-codes: G21 G23 O32 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-ict, nep-iue, nep-mac and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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