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Digital payments, informality and economic growth

Author

Listed:
  • Ana Aguilar
  • Jon Frost
  • Rafael Guerra
  • Steven Kamin
  • Alexandre Tombini

Abstract

We examine the relationship between digital payment innovation, economic growth and informal activities in 101 economies over 2014–19. Following the economic growth literature, panel regressions relate growth rates of GDP per capita, total factor productivity (TFP) and the share of informal sector employment to lagged levels of these variables, the extent of digital payments use and various controls for endogeneity. We find that a one-percentage point increase in digital payments use is associated with increases in the growth of GDP per capita of 0.10 percentage points over a two-year period, and a decline in the share of informal sector employment of 0.06 percentage points over a two-year period. Insofar as the reported share of the population making digital payments ranges nearly from 0 to 100 percent, this is substantial. Digital payments do not appear to be significantly associated with rises in TFP, once controlling for general measures of digitalisation and government effectiveness, but they are linked to greater financial inclusion and credit access. Our results reinforce the case for government policies to encourage digital payments and, as complementary factors, access to the financial sector and information technology.

Suggested Citation

  • Ana Aguilar & Jon Frost & Rafael Guerra & Steven Kamin & Alexandre Tombini, 2024. "Digital payments, informality and economic growth," BIS Working Papers 1196, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1196
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    References listed on IDEAS

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    1. Nina Czernich & Oliver Falck & Tobias Kretschmer & Ludger Woessmann, 2011. "Broadband Infrastructure and Economic Growth," Economic Journal, Royal Economic Society, vol. 121(552), pages 505-532, May.
    2. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    3. Raphael Auer & Giulio Cornelli & Jon Frost, 2023. "Rise of the Central Bank Digital Currencies," International Journal of Central Banking, International Journal of Central Banking, vol. 19(4), pages 185-214, October.
    4. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, April.
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    More about this item

    Keywords

    digital innovation; informal economy; productivity; economic growth;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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