Working Paper Series: Special Edition of 2016 to 2018 Interns

comparative variables such that interpretation of coefficients becomes that of responsiveness rather than speed of convergence. The dynamic panel regression model to be estimated in this study becomes: lGDP_PC it = β 0 + β 1 CTR it + β 3 lPOST it + β 4 PSC it + β 5 GCF it + β 6 TO it + β 7 GEXP it + µ it (3) Where lGDP_PC is the log of per capita GDP, CTR is card transaction, lPOST represents the log of point-of-sales- terminals, PSC is private sector credit to GDP, GCF is gross fixed capital formation, TO is trade openness and GEXP is government expenditure. 4.2 Data There is no approved measure of financial innovation, henceforth, studies often proxy financial innovation with different variables (Laeven et al 2012). For this research, the number of point of sale terminals (POST) and the value of card transactions (CTR) both credit and debit card will be used as proxies for financial innovation. These variables represent more modern innovations within the financial sector that managed to increase the access to financial credit and ease of payments. Financial development is proxied by private sector credit to GDP (PSC). PSC is more likely to gauge development within the financial sector as it explains the financial depth within the sector. It is expected that financial innovation will have a positive effect on economic growth. This is based on their ability to reduce cost of financial transactions, raise the ability to access credit and boost the level of efficiency in the financial sector, thereby driving economic activity and growth. Other variables include, gross fixed capital formation (GCF), trade openness (TO), and government expenditure (GEXP) 15 . These variables were included in the model as there was an interest in considering the effects of the additional variables in the model. GCF and TO are expected to have a positive effect on growth while GEXP is expect to have a negative effect. Economic growth is measured by per capita GDP. Lastly, all financial variables were deflated by the consumer price index.

15 See table 1 for definition of variables.

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