Economic Outcomes of Digitalization and Financial Development: Insights From 125 Economies

ABSTRACT Digitalization is argued to be transformative, where digital platforms are becoming increasingly popular to the point that governments have included digitalization in their blueprints. Regardless of the buzz, it is unclear if digitalization enhances economic growth and lowers volatility. This further becomes more important with the development divide among the economies. We explore whether digitalization enhances economic growth and volatility in global settings. We do this by taking 125 economies as a sample for 2011–2021. We employ the system generalized method of moments estimator for potential omitted variable bias, endogeneity, and simultaneity concerns. It is found that digitalization enhances overall economic growth with no significant impact on volatility. Furthermore, it is found that digitalization slows economic growth and increases volatility in developing economies. For developed economies, the impact of digitalization on economic growth and volatility is precisely the opposite, which is interesting because developed economies are capitalizing on transformative opportunities, and developing economies are yet to explore the potential of digitalization. Moreover, it has been found that economies with more financial development experience extra benefits of digitalization, have higher economic growth, and have lower volatility. These findings are robust to alternative proxies for digitalization, country‐year fixed effects, and different econometric estimators. This study carries vital policy implications for governments, policymakers, and digital platforms.