Working Paper Series: Special Edition of 2016 to 2018 Interns

5.1 Granger Causality Tests The Dumitrescu & Hurlin Granger non-causality test was utilized in this study. Table 8 shows the results for the test estimated between selected variables. The results indicate that there is no causality from financial innovation to per capita GDP or vice versa. However, there is the possibility of a long run causal relationship. Therefore, it is not conclusive to say that there is no causal relationship between financial innovation and growth. 6.0 Conclusion and Policy Recommendations This paper investigated the role of financial innovation on economic growth in the ECCU over the period 2004-2016. The study limited financial innovation to payment systems. The findings showed that there was a positive relationship between financial innovation and economic growth, which supports the prediction in the model as well as the existing literature. The advancement in payment systems is fuelled by the development in technology and innovation, evidenced by the increased use point of sales terminals and card transactions. It is envisaged that ongoing development with electronic payment systems will expand the society’s ease of access to cashless payments, thereby fuelling increased demand in the economy. This is in keeping with the ECCB’s goal of significantly reducing the quantum of cash transactions over the medium to long term. Further, financial innovation is seen as a critical component to achieving the ECCU’s growth target of 5.0 per cent based on the efficiency gains that are likely to be derived from the new technologies. This paper like other empirical papers, encountered some limitations which may have impacted the robustness of the findings. First, the data sample was small, therefore limiting the ability to do adequate panel data-related estimation techniques that requires a larger sample set. Also, the researcher wanted to include other variables in the model based on empirical literature, but the data for ECCU was unavailable, thereby, limiting the proxies of financial innovation to payment systems. Consequently, it is the researcher’s intention to expand the dataset and/or utilize other techniques to further investigate the relationships among the variables in the future. Despite the limitations, however, the overall results corroborate the existing literature and can serve as the basis for further research for the region.

74