The roles of ICT and governance quality in the finance-growth nexus of developing countries: a dynamic GMM approach

Abstract

In an era of rapid technological advancements and increasing demands for effective governance, understanding the drivers of economic growth is vital. In Sub-Saharan Africa (SSA), where economic growth is fragile and highly reliant on financial systems, the interplay between financial development (FD) and economic growth (EG) is crucial. This study explores three core questions: (1) What is the direct relationship between financial development and economic growth in SSA? (2) How does ICT access mediate the financial development and economic growth nexus? (3) To what extent do governance structures moderate this relationship? Using panel data from 36 SSA countries spanning 1990 to 2022, the study applies robust methodologies including two-step system GMM, dynamic common correlated effects, IV-2SLS, and fixed effects models to address potential endogeneity concerns. Results reveal that financial development in the private sector and broad money supply significantly promote economic growth, while financial development in the financial sector negatively affects growth. ICT access amplifies the positive impact of financial development on economic growth, while effective governance structures further strengthen this relationship. These findings highlight the need for policies fostering private-sector financial development and maintaining broad money supply stability to stimulate growth. Policymakers should also prioritize expanding ICT access and enhancing governance standards to drive sustained economic growth in SSA.