Study On Digital Finance In LDCs And Its Impact On Economic Growth

Nowadays Digital Economy has achieved considerable progress,which has attracted views from policymakers,businesses and academic world.Digital finance,as one component of Digital Economy,is now one focus of scholars.Digital finance is an increasingly important factor in economic growth,which comprises an indispensable ingredient of digital economy with long distance office work,e commerce,cloud computing etc.However,the academic research on digital finance lags far behind the reality of digital finance,both domestic and overseas.The scholarly world lacks in-depth study on such topic as the relation between digital finance and economic growth,and real world and traditional financial sector,with green finance and low carbon economy,with supervision innovation and financial risks,with income distribution and poverty alleviation,with monetary policy mechanism and digital currency,the determining factor of digital finance,its micro mechanism and its business model.Especially,there are several research gaps on mechanism of digital finance on growth of LDCs,say,lacking in-depth analysis on characteristics and institutional background,current situation of digital finance of LDCs,lacking heterogeneousness analysis of mechanism of digital finance on economic growth between developed countries and LDCs.Current research do not focus on the collateral creation effect and institutional improvement mechanism either.The paper holds that there are two characteristics of digital finance on economic growth of LDCs,that is,internal disequilibrium and leapfrogging of some LDCs.There is institutional constraint on leapfrogging of digital finance of LDCs.The paper develops a Hotelling model based on double sided market theory,argues that the key to success of digital finance of some LDCs is reaching critical mass and realizing the positive feedback of customer number,experience and technology improvement.Then the paper holds that the regulation trap of commercial bank interest groups is the institutional constraint of digital finance of LDCs.There is difference of economic development stage,traditional finance,infrastructure,state capacity and corruption level between LDCs and developed countries.So the paper explores the heterogeneous mechanism of digital finance on economic growth between developed countries and LDCs,then clarifies the mechanism of digital finance on economic growth of LDCs—capital accumulation and institutional improvement.The paper is based on Solow Model and NeoInstitutional Economics.The mechanism of digital finance on capital accumulation of LDCs lies in increasing saving and credit.The paper argues that digital finance increases the efficiency and availability of saving,so digital finance promotes saving irrespective of interest income.The paper focuses on the collateral creation effect on improving credit availability,esp on alleviating the difficulty of SME financing(the discriminating finance restraint).As to institutional improvement mechanism,the paper holds that digital finance improves institution by curbing corruption and increase public goods,based on neo classical growth theory combined with neo-institutional theory,esp on Romer(2019).Then,the paper builds a theoretical framework of digital finance on cost-benefit analysis of corruption of official.After that,the paper develops a theoretical model of digital finance in increasing the revenue(both tax revenue and debt revenue)and efficiency of public goods from public sector.Then the paper discusses how digital finance boost the public goods from private sector.According to the theoretical analysis,the paper performs empirical study on effect of digital finance on economic growth,the mechanism of capital accumulation on growth and mechanism of institution improvement on growth with more than 40 LDCs of 13 years.The result of the empirical study corroborates the conclusion of theoretical analysis.Based on the theoretical and empirical conclusions,the paper provides three suggestions to elevate LDCs digital finance.Firstly,must make every effort to boost the digital finance in LDCs,esp.adopting an incentive compatible financial supervision system,at the same time,be cautious about the possible negative impacts of digital finance on economic growth of LDCs.Secondly,the paper suggests that developing appropriate digital financial products to promote the saving and credit,as well as digital insurance.The third is to implement strategy to promote institution improvement of digital finance.That is to say,combine the FDI strategy and digital finance,as well as combine the E-government strategy with digital finance.