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Mobile telephony, economic growth, financial development, foreign direct investment, and imports of ICT goods: the case of the G-20 countries

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Abstract

We study the interactions between the diffusion of mobile phones, foreign direct investment, financial development, ICT goods imports, and economic growth using a panel dataset covering the G-20 countries for the period 1990–2014. Using our multivariate framework, we find that all of the variables are cointegrated. Our findings also reveal a network of short-run and long-run causal relationships between the variables, including long-run unidirectional causality from foreign direct investment and financial development to the diffusion of mobile phones and economic growth.

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Notes

  1. Figures on the total number of subscriptions include multiple subscriptions per person, but still signify a remarkable growth in the number of mobile phone users.

  2. Early studies have looked at the impact of information and communication technologies (ICTs) on economic growth, focus on ICTs equipment such as radio, television, and fixed telephone. The economic impact of mobile phone development has only become a focus of study since the dramatic surge in mobile phone adoption since the 1990s (Andrianaivo and Kpodar 2012).

  3. Other related papers include Pradhan and Arvin (2016) and Pradhan et al. (2016a, b). However, these papers concentrate on the link between economic growth and internet penetration rates or development of telecommunications infrastructure in the context of other groups of countries.

  4. For two models (model 1: broad money supply and model 2: claims on the private sector), our sample consists of 17 economies only. This is due to exclusion of both France and Germany in these models because their data are not available on these two financial variables. Therefore, for two out of eleven models France and Germany are excluded.

  5. Financial development is defined in terms of the aggregate size of the financial sector, its sectoral composition, and a range of attributes of individual sectors that determine their effectiveness in meeting users’ requirements. The evaluation of financial structure should cover the roles of the key institutional players, including the central bank, commercial and merchant banks, savings institutions, development financial institutions, insurance companies, mortgage entities, pension funds, the stock market, and other financial market institutions (IMF 2005; Zaman et al. 2012). Thus, financial development includes both banking sector development and stock market development.

  6. BSD, SMD, and FNI are constructed using principal component analysis (PCA). The structure of PCA is based on a linear transformation of the variables so that they are orthogonal to each other (Lewis-Beck 1994). It is ideally suited because it maximizes the variance, rather than minimizing the least square distance. In sum, PCA transforms the data into new variables (the principal components) that are not correlated. PCA is explained in details in numerous articles and textbooks; Appendix C provides statistical values from our PCA.

  7. MOB is not always the dependent variable—the other four variables can take turns to act as the dependent variables in the other variations of this equation.

  8. Westerlund points out that Gα and Pα have higher power than τα and τα in samples where T is substantially larger than N.

  9. See Pesaran (2007).

  10. 5G is a technology discussed in research papers and projects to denote the next major phase of mobile telecommunication standards beyond the current standards. Some observers predict that wireless performance may face great challenges as more devices, using more and more services, compete for limited bandwidth (see, inter alia, Chirgwin 2013).

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Acknowledgements

The authors thank the Editor-in-chief, Laura Rondi, and two exceptional anonymous reviewers of this journal for many helpful comments and suggestions.

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Authors and Affiliations

  1. Vinod Gupta School of Management, Indian Institute of Technology, Kharagpur, WB, 721302, India

    Rudra P. Pradhan

  2. Department of Economics, Trent University, Peterborough, ON, K9L 0G2, Canada

    Mak B. Arvin

  3. Department of Financial Management, University of Pretoria, Pretoria, 0028, Republic of South Africa

    John H. Hall

  4. School of Business and Economics, Lynchburg College, Lynchburg, VA, 24501, USA

    Sara E. Bennett

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  1. Rudra P. Pradhan
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  2. Mak B. Arvin
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Corresponding author

Correspondence to Rudra P. Pradhan.

Appendices

Appendix A: positive externalities of the diffusion of mobile phones

Figure 2 describes the incidence of the positive externalities of the diffusion of mobile phones—shown as a network of connections.

Fig. 2
figure 2

Source: Capello and Nijkamp (1996)

Business-linked connectivity.

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Appendix B: profile of the G-20 economies

See Table 8.

Table 8 The macroeconomic profile of the G-20 economies
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Appendix C: formulation of composite indices using principal component analysis

We form three composite indices, namely banking sector development (BSD), stock market development (SMD), and overall financial development (FNI). These indices are received through principal component analysis (PCA) by using three successive strides: (1) data are organized in the same order to create an input matrix for the principal components, after which the matrix is normalized based on the min–max method; (2) using PCA, eigen-values, factor loadings, and principal components are derived; and (3) the principal components are used to construct these three indices for each country for every year. This method is described in many econometric textbooks and has also been used in numerous research papers. Hence, it will not be highlighted here. Tables 9, 10 and 11 presents the statistical values from our principal component analysis.

Table 9 Summary of PCA-related information for banking sector development index
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Table 10 Summary of PCA-related Information for stock market development index
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Table 11 Summary of PCA-related information for financial sector development index
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Appendix D: cointegration test results

See Table 12.

Table 12 Pedroni cointegration test results
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Pradhan, R.P., Arvin, M.B., Hall, J.H. et al. Mobile telephony, economic growth, financial development, foreign direct investment, and imports of ICT goods: the case of the G-20 countries. Econ Polit Ind 45, 279–310 (2018). https://doi.org/10.1007/s40812-017-0084-7

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