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The Digitalization – Economic Growth Relationship in Developing Countries and the Role of Governance

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  • Van Bon

    (University of Finance - Marketing (UFM))

Abstract

Digital technology is emerging as one of the suitable solutions to help developing economies catch up with advanced economies in the context of globalization. Progress in digital technology promotes economic growth in developing economies because it reduces transaction costs in economic activities and improves workers’ skills and knowledge. Meanwhile, governance is the primary cause of economic growth. Therefore, this study raises a research question of whether governance significantly contributes to the digitalization – economic growth relationship in developing countries or not. For the answer, the study uses the difference GMM Arellano-Bond estimators to empirically examine the effects of digitalization, governance, and their interaction on economic growth for a group of 35 developing countries from 2006 to 2019. Then, the study applies the FE-IV estimator to check the robustness of estimates. The results indicate that digitalization and governance boost economic growth while their interaction hinders it. Furthermore, trade openness also increases economic growth. These findings suggest some crucial policy implications that governments in developing countries should establish appropriate conditions to promote digital technology so that citizens can peacefully express their views on government policies and regulations, which contributes to the economic development of the country.

Suggested Citation

  • Van Bon, 2021. "The Digitalization – Economic Growth Relationship in Developing Countries and the Role of Governance," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 68(4), pages 481-493, December.
  • Handle: RePEc:aic:saebjn:v:68:y:2021:i:4:p:481-493:n:5
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    References listed on IDEAS

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    1. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    2. Habibi, Fateh & Zabardast, Mohamad Amjad, 2020. "Digitalization, education and economic growth: A comparative analysis of Middle East and OECD countries," Technology in Society, Elsevier, vol. 63(C).
    3. Stella Chinye Chiemeke & Omokhagbo Mike Imafidor, 2020. "An assessment of the impact of digital technology adoption on economic growth and labour productivity in Nigeria," Netnomics, Springer, vol. 21(1), pages 103-128, December.
    4. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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