Digital transactions and financial development: The moderating role of global integration across income levels

This study examines the interaction between digital financial transactions (DFT) and financial development (FD) across 121 countries over the period 2003–2022, focusing upon the moderating role of global financial integration (GFI). Using two-step system generalised method of moments (GMM), Bootstrap Quantile-on-Quantile Regression, Nonlinear multilevel Mixed-Effects and D-K Fixed Effects models, this study explores the variations in this relationship across high-, upper-middle-, and low-income countries. The findings indicate that DFT and economic development positively influence FD, while bank risk demonstrates a negative influence. Governance quality positively influences FD, and while GFI also positively influences FD, it weakens the positive impact of DFT on FD globally. Interestingly, GFI strengthens the DFT-FD relationship in middle- and low-income economies, suggesting region-specific dynamics and the potential of GFI to counter structural barriers in these economies. This distinct interaction emphasises the need for customised policies that promote both digital financial inclusion and global financial integration that are aligned with country-specific economic contexts. Our study provides actionable insights for policymakers to foster sustainable financial development through customised digital and financial integration strategies.