Causality Between ICT, Financial Development And Economic Growth In Kenya

Research background The growing importance of information and communication technology (ICT) in every facet of life motivated this study to examine the association between ICT, financial development and economic growth. Purpose The purpose of the study is to establish if there is a causal relationship among ICT, financial development and economic growth using annual data from 1990 to 2021. Research methodology The study used ARDL bounds test for cointegration and the error correction model (ECM) – based Granger causality technique to examine the causal relationship between the three variables. Three proxies for ICT: the number of fixed telephone subscriptions per 100 people, the number of individuals using the internet as a percentage of the total population, and the number of cellular subscriptions per 100 people were used. Results The study found the causality between ICT, financial development and economic growth to vary depending on the ICT proxy used. A unidirectional causal flow from ICT to economic growth was found to predominate in the long run when two out of three ICT proxies were considered. The study also found bidirectional causality between ICT and financial development to dominate in the short run when two out of three ICT proxies were considered and a unidirectional causal flow from ICT to financial development in the long run when all three ICT proxies were considered. Novelty The study departs from the current literature on the causal relationship between ICT, financial development and economic growth by employing three proxies of ICT, namely the number of telephone subscriptions per 100 people, the number of cellular subscriptions per 100 people and the number of individuals using the internet as a percentage of the total population.