Interconnections in the Digital Economy: The Impact of Financial Freedom on Financial Contagion and Economic Growth

In the current digital era, technological transformations have become an essential factor in the evolution of global economies. Our study analyzes the impact of digitization, financial freedom, and unemployment rate on economic growth. It also highlights how regional and global interconnectedness can generate financial contagion effects that affect economic growth. Thus, four research hypotheses were established and tested in our study using the Autoregressive Distributed Lag (ARDL) model. Firstly, we hypothesized that the unemployment rate has a negative effect on economic growth, while digitalization has a positive impact on economic growth. Concerning financial freedom, the ARDL model revealed that it positively influences economic growth, but only in the short term. Additionally, the model showed that financial freedom moderates the impact of financial contagion on economic growth, also in the short term. The findings of our research underscore the complex relationships between these variables in the context of the digital economy and global interconnectivity. They highlight the short-term positive impact of financial freedom on economic growth and its role in mitigating the effects of financial contagion. Moreover, the study emphasizes the importance of understanding how digitalization, financial freedom, and unemployment rate interact to shape economic dynamics. These insights contribute to a deeper understanding of the intricate dynamics of the contemporary economy and provide valuable implications for policymakers, businesses, and researchers. In an increasingly interconnected world, where technology plays a pivotal role, comprehending these relationships is crucial for fostering sustainable economic growth and financial stability.