COVID-19, Digital Transactions, and Economic Activities: Puzzling Nexus of Wealth Enhancement, Trade, and Financial Technology

We examine the role and effectiveness of the several modes of financial inclusion and technology for uninterrupted economic and business activities during the COVID-19 pandemic. Our study is based on empirical analysis through statistical estimation of four mathematical equations. The Cross-Sectional Random-Effects Model in panel least squares (PLS) technique based on 4 years’ data on 102 countries was applied to identify the determinants of GDP growth, shareholders’ wealth, and trade in goods and services. We tested the impacts of the use of credit cards, use of the internet for shopping and payment of utility bills, and electronic transfer of funds on GDP growth, trade in goods and services, and shareholders’ wealth. We envisage that COVID-19 has adversely affected GDP growth, but the use of financial technology for buying goods and services, and receiving money through digital modes during the pandemic crisis, may offset economic losses to some extent. The empirical evidence shows that a higher share of the population receiving payments by digital mode and using the internet to pay bills or buy something online is significant and a robust determinant of trade in goods and services. Similarly, the use of the internet for buying things and for paying utility bills is a significant positive determinant of GDP growth. We also estimate the results for 35 Asian countries separately and found that the COVID-19 pandemic and the use of fintech have affected these Asian countries in a similar way. These conclusions support the promotion of e-money and digital transactions in the economy. Although the role of the provision of domestic credit to the private sector is not significant in the determination of trade in services, it is a highly significant determinant of the value of investors’ wealth and merchandising trade. The positive association of trade in services with the magnitude of merchandising trade indicates that policy makers must consider the interconnectivity of these two types of trade. Another important finding from the policy formulation point of view is the significant role of financial technology in GDP growth. We also observed a significant association between GDP growth and the number of deaths due to COVID-19.