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Banks' financial innovation and the demand on money

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I
nt. J. Monetary Economics and Finance, Vol. 12, No. 3, 2019 169
Copyright © 2019 Inderscience Enterprises Ltd.
Banks’ financial innovation and the demand on
money
Ala’ Bashayreh, Mohammad W. Alomari,
Samer Abdelhadi* and Naderh Mryan
Department of Economics,
The Hashemite University,
Zarqa, 00962, Jordan
Email: a.bashayreh@hu.edu.jo
Email: mohammadw@hu.edu.jo
Email: samera@hu.edu.jo
Email: naderh@hu.edu.jo
*Corresponding author
Abstract: Financial innovation has come through improvement over time in
financial tools and payment instruments used in the lending and borrowing of
funds. This study aims at investigating the effect of electronic money
on demand for money in Jordanian economy. The study uses ordinary least
square (OLS) regression model to analyse a panel data over the period of
(2011–2016), depending on data collecting of 13 commercial banks in Jordan.
Results reveal that both GDP growth and the growth of visa cards number of
each bank have positive and significant effect on the demand for money.
On other hand, money demand was found to be negatively related with growth
of interest rate, growth of total credit facilities granted by each bank,
technological progress and utility bills paying service.
Keywords: demand on money; financial innovation; commercial banks;
Jordan.
Reference to this paper should be made as follows: Bashayreh, A.,
Alomari, M.W., Abdelhadi, S. and Mryan, N. (2019) ‘Banks’ financial
innovation and the demand on money’, Int. J. Monetary Economics and
Finance, Vol. 12, No. 3, pp.169–179.
Biographical notes: Ala’ Bashayreh has PhD in Business Economics,
working as an Assistant Professor at the Hashemite University, Zarqa, Jordan,
since 2016–present. She worked as Part Time Lecturer in the University of
Jordan from 2014–2016. She worked in The National Centre for Human
Resources Development as Al Manar project manager (labour market) from
2012 to 2015. Also, she worked as economic researcher at the Central Bank of
Jordan from 2005–2008 and then dedicated to get the PhD. She is interested in
business economics, labour market, financial economics, econometrics, fiscal
policy, monetary policy and economic development.
Mohammad W. Alomari has PhD in Business Economics, working as an
Assistant Professor and Department Chair in Economics Department at the
Hashemite University, Zarqa, Jordan, since 2016–present. He worked as an
Assistant Professor in Economics Department at Nizwa University, Nizwa-
Oman, from 2014 to 2016. His research interests are business economics,
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financial economics, industrial organisation and managerial economics,
firms performance analysis, efficiency analysis, economic development,
econometrics.
Samer Abdelhadi, PhD in Business Economics. He worked as a banker for
nine years in two banks: Cairo Amman Bank and Housing Bank then moved
toward academic career, starting as a Lecturer in Zarqa University. Then, he
moved to Petra University as an Assistant Professor in Finance and Banking
Sciences Department. He worked as a Part-Timer in University of Jordan,
Business Economic Department. Right now, he is an Assistant Professor in
Economic Department in The Hashemite University.
Naderh Mryan has Master degree in Economics and is working as tutor in
Economics Department at the Hashemite University since 2000 to present.
1 Introduction
Recently, various countries of the world, developed and developing, have experienced
technological development in the banking systems and financial instruments. This
development is one of the outcomes of economic globalisation, which has contributed to
stimulate economic performance and increase efficiency.
The banking sector has developed significantly to suit the nature of the global
economic system, information revolution, telecommunications and banking development.
The most important of these developments is to allow banking customers to make
purchases and sell through the internet using electronic payment methods. These banks
are known as electronic money, which is today one of the most modern systems of
payment and the most modern forms of money and development, it does not take the
form of material, but the transmission of information between the parties’ exchange, so
electronic money is the latest and most sophisticated methods in line with technological
advances. Money is no longer limited to traditional money, which is in the form of paper
supports, but it is now possible to use electronic documents or papers instead of
traditional paper documents. This is the result of technological developments that led to
the need for this type of money, which has a different concept.
Money demand is one of the major economic variables, and as we know, there are
three motives for demand for money: transaction, speculation and precautionary. Despite
major improvements in payment technologies and their widespread diffusion over the
past decades, cash transactions still account for a large share of overall payment
transactions, both in terms of total number and value (Huynh et al., 2014).
Thus, the problem of research reveals as to test whether using electronic money has
any effect on the demand for money in Jordan economy or not, and if yes by how much.
The electronic money contains the following variables: The ratio of Visa Cards number
of each bank, the ratio of Total Credit Facilities grants by each bank, automatic teller
machines (ATMs) ratio and the Bank’s Branches Number ratio.
In this paper, we employ ordinary least square (OLS) regression model to analyse the
panel data and examine the effects of commercial Banks’ financial innovation on money
demand in Jordan over the period of (2011–2016), depending on data collecting of
13 commercial banks in Jordan.
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2 Literature review
Theory would indicate a positive relationship between money demand and income
measured by GDP. The banking sector has developed clearly in the past decades due to
globalisation and the technological revolution, and this has been reflected in many of the
banking services provided by that sector. Thus, electronic money has become one of the
forms of technological development and a requirement of this era, which led many
researchers to do several studies on the role of this technological development in
contributing to the acceleration of economic growth, through its impact on many
economic sectors.
Several studies aimed to modelling the demand for money. Many techniques are used
to modelling demand for money, some of them use cointegration method to test the long
run relation of the determinants of money demand. Al-Rabbaie et al. (2011) argue that
structural time series model (STSM) introduced by Harvey (1989), allows to model the
developments in financial market, hence it permits for a non-linear stochastic trend,
which may be a good proxy for such developments. Odularu and Okunrinboye analyse
whether financial innovations that occurred in Nigeria after the Structural Adjustment
Program of 1986 has affected the demand for money in Nigeria using the Engle and
Granger Two-Step Cointegration technique.
Other studies focused on the impact of electronic money on money supply and
monetary policy role in the economy. For example, Popovska-Kamnar (2014) says that
every innovation needs time for penetration in the market, and expect that e-money will
be accepted as a regular payment instrument in the future. Following this, its influence on
monetary policy could be increased. This means that developed countries and developing
countries need to monitor the trend of development of e-money on the market and the
increasing degree of use by institutions and clients.
Durgan and Timur (2015) indicates that the growing understanding of money has
become completely different from traditional money and do not control or produce by
central banks. However, it serves as money and it carries the same specialties. Users are
also able to reach and transfer electronic money without intermediaries and central banks.
Electronic money is produced and secured by internet codes. Despite the complicated
matrix codes, still there are doubts on its security. Some countries prohibited their usage
as a policy decision.
AL-Laham et al. (2009) argue that e-money, as a network good, could become an
important form of currency in the future. Such a development would influence the
effectiveness and implementation of monetary policy. If an increased use of e-money
substantially limits demand for central bank reserves, it would require changes in the
operational target of the central bank and a closer coordination of monetary and fiscal
policies.
On the other hand, some studies have tried to show the impact of electronic money on
the demand for money in the economy. Reddy and Raj (2017) examines the questions
that whether the usage of credit and debit cards affect currency demand and seignior age
in India by employing auto regressive distributed lag (ARDL) approach. The results find
that the use of credit cards is negatively associated with currency demand whereas use of
debit cards is positively associated with demand for currency in India. The effect of cards
on seignior age revenue is inconclusive.
Huynh et al. (2014) testing the role of card acceptance in the transaction demand for
money. The results conrm that card acceptance exerts a substantial impact on the
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demand for cash. The estimate of the consumption elasticity (0.23 and 0.11 for Austria
and Canada, respectively) is smaller than that predicted by the classic Baumol-Tobin
inventory model (0.5). We conduct counterfactual experiments and quantify the effect of
increased card acceptance on the demand for cash. Acceptance reduces the level of cash
demand as well as its consumption elasticity.
Rinaldi (2001) analyses the use of alternative payment media in Belgium and the
effect of such changes in the financial system by estimating an equation of demand for
currency and approximate the substitution effect of cash with cards over the period
1960–1999. He found that card payments have contributed to the reduction of money
demand, since the elasticity of money demand to ATMs has a negative sign, meaning that
ATMs contributed significantly to money reduction. He argues that the use of electronic
money, the most advanced retail payment instrument, has taken off more slowly than
what was expected.
Berentsen (1997) analyses how digital money affects the use of various payment
instruments. He finds that digital money poses a credible threat to paper currency because
it is specifically designed to make small value payments in retail transactions and because
it would reduce transaction costs for consumers and businesses. But convincing agents to
use digital money products and providing a secure product will make the implementation
of a digital money scheme costly.
Yilmazkuday and Yazgan (2009) analysed the effects of credit and debit cards on the
currency in circulation in Turkey using GMM estimation. Results suggest that the usage
of credit and debit cards had a negative effect on currency demand. However, the usage
of the debit cards had a larger impact on the currency demand than credit card usage due
to the fact that debit cards were inevitably used to withdraw cash from ATMs.
Yilmazkuday also found that the effect of debit cards was largely through withdrawals
while that of credit cards occurred largely through purchases. He hypothesised that the
negative effect of credit cards on currency demand largely reflected a shift in individuals’
demand for currency, whether transactional or precautionary in nature, to credit cards.
Others like Tehranchian et al. (2012) try to test the impact of e-money on money
demand in the short run and long run. The results indicate that the long-run impact of
modern technology on demand for money is strongly greater than short-run which means
that the increase in the number of ATMs and credit cards, the demand for currency will
increase in both short and long runs. Whereas the impact of increase in POS on demand
for currency is negative.
Hafeer and Kutan (2003) tests whether financial innovations in the Philippines
distorted the long-run relation between real money balances, income and interest rates.
Results confirm that financial innovation has statistically positive significant effect in the
long as well as in the short run on money demand. But the short run elasticity is more
than the long run elasticity.
Naghshpour and Davis (2018) found that policies which liberalise banking to include
more branches and ATMs could spur greater growth in emerging economies like those of
Eastern Europe.
Noor and Azli (2009) indicate that Islamic credit card, better known as Credit Card-i,
is one of the alternative banking products introduced by Islamic Financial Institutions in
Malaysia to substitute for the conventional credit card. They reviewing the structures and
instruments applied by Islamic Financial Institutions in Malaysia from Shariah
Compliance perspectives. The method used is descriptive and positive analytical criticism
which aims at improving the existing structure.
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Some studies did not found a negative relationship between diffusion of e-money and
cash holding by individuals. Fujiki and Tanaka (2009) say that currency demand
indicates that average cash balances do not decrease with the adoption of electronic
money. Rather, it seems to increase under some specifications. Second, households at the
lowest quantile of the cash balance distribution tend to have higher cash balances after
adopting of electronic money. These findings indicate that consumers do not significantly
substitute cash holding with e-money holding despite the rapid diffusion of electronic
money among households.
Dunne and Kasekende (2016) examine the development of financial innovation and
its impact on money demand for 34 Sub- Saharan Africa countries over the period (1980–
2013) and found a negative relationship. Also, Safdar and Khan (2014) found a negative
effect of both the numbers of ATM and cards on the demand for money.
Also, Yang and King (2011) discussed whether the use of credit cards reduces
aggregate money holdings in an economy. They found that the innovations in the banking
industry such as ATMs, online banking, and other electric funds transfer services, the
cost of visiting banks (i.e., switching funds between a checkable account and an interest-
earning account) is now very low. For the whole economy, as a result, the use of credit
cards may not necessarily reduce aggregate money holdings.
3 Research methodology
3.1 Types and sources of data
This study employs secondary data which was collected from the annual reports of
association of banks in Jordan besides the central bank of Jordan during the fiscal year of
2011 to 2016. Thus, this study will utilise panel data.
3.2 Variables with its measurement
Table 1 shows variables of the study with its measurement.
Table 1 Variables with its measurement
Variable Measures
Expected
sign Indicators
Dependent Money demand
growth (MDG)
1
1
M
Dt MDt
MDt
−−
Fiscal Money demanded
Independent Gross domestic
production growth
(GDPG)
1
1
GDPt GDPt
GDPt
−−
+ Indicates the percentage
change in GDP per year
Interest rate growth
(rG)
1
1
rt rt
rt
−−
Indicates the percentage
change in interest rate
for loans and credit
growth of visa
cards (VCG)
1
1
VC ti VC ti
VC ti
−−
, i = 13:
t = 6
+ Indicates the percentage
change in visa cards
number issued by each
banks in each year
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Table 1 Variables with its measurement (continued)
Variable Measures
Expected
sign Indicators
Growth of master
cards (MCG)
1
1
M
Cti MCti
MC ti
−−
,
i = 13: t = 6
+ Indicates the
percentage change in
master cards number
issued by each banks
in each year
Growth of total
credit facilities
(TCFG)
1
1
TCF ti TCF ti
TCF ti
−−
,
i = 13: t = 6
Indicates the
percentage change of
each bank’s credit
facilities in each year
Independent Growth of total
deposit (TDG)
1
1
TCF ti TCF ti
TCF ti
−−
,
i = 13: t = 6
+ Indicates the
percentage change of
total deposits in each
bank for each year
Utility bills paying
(D1)
Dummy variable
measured as 0 or 1, 0
means the service not
provided by ATM, and 1
means the service is exists
Services provided by
commercial banks’
ATM’s (Dummy
variables)
Technological
progress (T)
Measured by Trend, it
takes values from 1 to n,
where n = number of years
Indicates the
technological
advance that
achieved over time in
Banking sector
Source: Empirical literatures
3.3 Model specification
This paper employs OLS regression model to analyse the panel data and examine the
effect of commercial Banks' financial innovation on money demand in Jordan. Through
literature review, this study constructs an empirical growth regression model below:
1
n
it j it it
j
M
DG C B X U
=
=+ +
(1)
where the dependent variable MDG
it
is Growth of Money demand for country ‘i’ at time
t’, X
it
is explanatory variables as its measurement in appendix, C is constant, β is the
coefficient and U is the error term.
The study determines which of the two growth models (fixed effect (FE) and random
effect (RE)) is best fit by applying the Hausman test for random effects.
3.3.1 Data statistical description
Before starting regression analysis, it is important to take a look at descriptive data and
statistics that give an idea about the maximum, minimum, average, and standard
deviation of study’s variables of commercial banks in Jordan. Table 2 shows the data
statistics.
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inancial innova
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Table 2 Data statistics
MDG GDPG rG VCG MCG TCFG TDG
Mean 0.017 0.011 –0.020 0.035 –0.066 0.035 0.054
Maximum
0.037 0.013 0.031 1.788 1.037 0.313 0.279
Minimum –0.004 0.009 –0.070 –0.954 –0.929 –0.042 –0.122
Std. dev. 0.013 0.001 0.037 0.473 0.522 0.057 0.073
Source: Calculated values using Eviews 7
Statistics in Table 2 explain growth values of the study’s variables during the period
(2011–2016), the maximum growth value of Money demand is 3%, GDP is 1%, interest
rate is 3%, visa cards is 178%, master cards is 103%, total credit facilities is 31%, and
total deposits is 28%. The highest growth value is for visa cards and master cards while
the minimum growth values for visa cards and master cards are (–95%, –93%)
respectively. On the other hand, the standard deviation of those variables are 47%, 52%
respectively, which indicate fluctuation in growth values of debit cards.
3.3.2 Testing stationary problem
To ensure the stability of the variables, this study used the (LLC) test which was used by
Levin et al. (2002) it takes the following formula:
1
1
n
it i i ,t k i ,t k i t it
k
Ya Y Y t
Δ
ρ
Δδθ
μ
−−
=
=+ + ∅ + ++
(2)
Table 3 presents unit root test. According to t-statistic values and its probability the
results show that all variables are stationary in their level, which means the rejection of
H0 hypothesis and so there is no unit root in the model’s variables.
Table 3 Unit root test
Stationary Lag Probability t-statistic Variable
Level** 0 0.000 –9.915 MDG
Level* 0 0.000 –3.384 GDPG
Level** 0 0.000 –6.189 rG
Level** 0 0.000 –7.788 VCG
Level** 0 0.000 –4.360 MCG
Level* 0 0.000 –3.739 TCFG
*Individual effects; **Exogenous variables: Individual effects, individual linear trends.
Source: calculated values using Eviews 7
3.3.3 Testing multi-collinearity problem
Multi-collinearity between the explanatory variables can be tested by Variance Inflation
Factors test (VIF), the results were as Table 4.
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Table 4 Testing multi-collinearity
1/VIF VIF Variable
0.311 3.209 GDPG
0.457 2.188 rG
0.510 1.957 VCG
0.773 1.293 MCG
0.865 1.156 TCFG
1.960 Mean VIF
Source: calculated values using Eviews 7
Table 4 presents the multi-collinearity among the independent variables. According to
Robert (2007), the variance inflation factor (VIF) above 10 or the tolerance value (1/VIF)
below 0.1 is an indication that there is a problem of multi-collinearity among the
variables. The table shows that there is no VIF greater than 10 and 1/VIF below 0.1; in
turn reveals any of the independent variable included in this study is not explained by the
other. Hence all variables can be retained in the model of this study.
3.3.4 Testing autocorrelation problem
The Durbin-Watson (DW) statistic is a test for first order serial correlation. More
formally, the DW statistic measures the linear association between adjacent residuals
from a regression model. The Durbin-Watson is a test of the hypothesis (ρ = 0) in the
specification:
u
it
= ρ u
it–1
+ ε
it
(3)
If there is no serial correlation, the DW statistic will be around 2. The DW statistic will
fall below 2 if there is positive serial correlation (in the worst case, it will be near zero). If
there is negative correlation, the statistic will lie somewhere between 2 and 4. A rule of
thumb is that test statistic values in the range of 1.5 to 2.5 are relatively normal.
The
results show that DW statistic in our model equals to 2.08
, which means DW is
relatively normal and there is no serial correlation.
4 Regression analysis
To determine whether fixed effect (FE) or random effect (RE) is appropriate to the
study’s regression model, Hausman test was conducted. According to Chi-square statistic
13.185 and its probability 0.067 the
Hausman test shows that RE is appropriate for
the regression model
. The result of regression analysis of growth models presented in
Table 5
.
The regression result in Table 5 shows the effect of commercial Banks' financial
innovation on the demand of money in Jordan. GDP growth is positive and significant
(p-value is 0.029) at 5% significance level. This indicates that when GDP growth
increases by 1%, money demand growth will increase by 0.559% which is consistent
with the economic theory since the increasing of GDP attract more economic activities
and increase the aggregate demand which will reflected positively on the money
Banks
financial innova
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ion and the demand on money
177
demanded. On other hand, money demand related negatively with interest rate, and the
results show that interest rate growth (rG) is negative and significant (p-value is 0.000) at
1% significance level. This indicates that when interest rate growth increases by 1%,
money demand growth declines by 0.459%. According to economic theory, interest rate
related negatively with investment – one of the components of the aggregate demand-
when interest rate increases the aggregate demand declines and money demanded
declines, too.
Besides, the growth of debit visa cards number of each bank was found to has a
significant positive effect (p-value is 0.001) on the growth of money demand at 1%
significance level. Showing that while the bank’s visa cards number increase by 1%,
money demand increases by 0.053%.The positive relationship comes from the purpose of
using visa cards where most people in Jordan used the visa cards for cash withdrawal and
that is why the growth of visa cards and money demand are positively related. On other
hand, the growth of master cards number of each bank is not significant. This is expected
due to the unconditional salary transfer of visa comparing to master card.
Table 5 Regression analysis
Dependent variable is MDG (Random Effects)
Variable Coefficient t-Statistic Prob.
C 0.012 2.456 0.022**
GDPG 0.559 2.327 0.029**
rG –0.459 –5.542 0.000*
VCG 0.053 3.548 0.001*
MCG 0.028 1.269 0.216
TCFG –0.028 –2.846 0.009*
D1 –0.077 –2.586 0.015**
T –0.038 –4.786 0.000*
R
2
0.897
Adjusted R
2
0.866
F-statistic
28.785
(0.000)
D-W
statistic
2.08
Observations
78
*,**significant at significance level 1% and 5% respectively.
Source: Calculated values using Eviews 7
Referring to the effect of growth of total credit facilities granted by each bank on growth
of money demand, it was found to be negative (with p-value of 0.009) at 1% significance
level. This result showing that as the credit facilities increases by 1%, the growth of cash
money demand decreases by 0.028%. Such service make life easier for clients and save
time for them to make their transactions without cash payments.
As identified in this study, one dummy variable was examined; Utility bills Paying
(D1) which used to be a service provided by banks’ ATMs. Coefficient of D1 has a
significant negative effect (p-value 0.015) on cash money demand growth at significance
level 5%.In fact, thanks for being able to paying bills in a few minutes no matter where
you are and even without going to any company, moreover without carry any cash
money. That is why the utility bills paying and money demand are negatively related.
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Besides, coefficient of technological progress (T) has negative and statistically significant
effect (p-value 0.000) on cash money demand growth at significance level 1%. Such
result indicates that more and more financial innovation in Banking sector affect money
demand negatively, where people can substitute cash money by electronic money in their
transactions. So in order to control the money demand, banks should increase the ATMs.
Results in Table 5 show that the value of R-square is 90%, meaning 90% of the
growth of money demand variation in Jordan is explained by the independent variables.
Moreover, F-statistic and its probability show that the overall regression model is
statistically significant. Under these circumstances, the panel analysis seems to be
appropriate for this research model.
5 Conclusion
Financial innovation has come through improvement over time in financial tools and
payment instruments used in the lending and borrowing of funds. This study aims at
investigating the effect of electronic money on demand for money in Jordanian economy
over the period (2011–2016), depending on data collecting of 13 commercial banks in
Jordan.
Results reveal that GDP growth and the growth of visa cards number of each bank
have positive and significant effect on the demand for money. On other hand, money
demand was found to be negatively related with growth of interest rate, growth of total
credit facilities granted by each bank, technological progress and utility bills paying
service. But the growth rate of master cards number of each bank is not significant. This
is expected due to the unconditional salary transfer of visa comparing to master card.
The study recommends to widen the innovation partnerships between humanitarian,
development process, private sector and national governments for better equip e-financial
systems to meet the needs of humanitarian actors. On the other hand, it is important to
study the effect of such innovation on the monetary policy.
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Yilmazkuday, H. and Yazgan, E. (2009) ‘Effects of credit and debit cards on the currency demand’,
Applied Economics, Vol. 41, No. 17, pp.2115–2123.
... Furthermore, the link between export diversification and economic growth has been examined by Nwosa et al. (2019). The authors have found that export diversification has positive but insignificant relationship with economic growth in Nigeria, while in GCC, (Bashayreh et al., 2019) analyzed the short run and long run effects of export diversification on economic growth for Gulf Cooperation Council countries. The results of the research show a positive significant long run relationship between export diversification and economic growth while in the short run it does not support any other prior studies. ...
... Furthermore, findings of Vahalik (2015) indicates that export diversification has a positive effect on economic growth in developing countries. But investigations of Bashayreh et al., (2019) reveal a positive significant relationship between export diversification and economic growth in the long-run and contradicts the findings of prior researches in the context of Gulf Cooperation Council (GCC) countries. ...
... The main objectives of this research is to identify the relationship between export diversification and sustainable economic growth in Afghanistan and to investigate the impacts of export diversification on sustainable economic growth in the country. Findings of this research show a positive relationship between export diversification and economic growth in Afghanistan from 2008 to 2018 which is also supported by (Bashayreh, et al., 2019;Mania and Rieber, 2019;Nwosa et al., 2019;Sannassee et al., 2014;Vahalik, 2015). Though many researchers agree to the substantial benefits of export diversification, it could also be argued that there are certain challenges which limit export diversification in least developed countries (LDC). ...
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Economic growth and acceleration of international trade has been a major concern for researchers all over the world. In this regard, this paper aims to investigate the relationship between export diversification and economic growth in Afghanistan. Economic growth in the long term is critical for Afghanistan to achieve political stability, self-reliance and sustainable economic development that have been, all together, committed to be implemented as part of the Sustainable Development Goals. This study used annual time series data for the period spanning from 2008-2018 to analyze the relationship between export diversification and economic growth in Afghanistan. In order to analyze the effects of export diversification on economic growth, VAR model has been applied. The estimated results denote that there is positive relationship between export diversification and economic growth in Afghanistan. Other explanatory variables like trade openness, gross domestic fixed capital formation is in favor of economic growth. It is recommended that measures should be taken towards the identification of new export markets by working closely with its regional counterparts to streamline the administrative requirements in the region to increase market access, put greater emphasis on the production of higher-value-added products and invest in human capital through education and training of skilled labor for high-value services.
... Increases in financial Uluslararası İktisadi ve İdari İncelemeler Dergisi innovations cause changes both in money supply and money demand and thus make the money supply an endogenous variable which is more difficult to control. This situation causes a more problematic environment for the central banks which are trying to hit the price stability target (Goldfeld and Sichel, 1990;Kogar, 1995;Oktayer, 2011) In this study, we explore the relationship between electronic payments and inflation. We use EFT variables as proxies for electronic payment variables. ...
... These developments in payment systems increase the circulation of money on the one hand, and, reduce demand for cash and lead to increased supply of money with reserve currency multipliers on the other hand. Therefore, increases in financial innovations can cause significant changes in both money supply and money demand (Kogar, 1995;Oktayer, 2011). ...
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The technological progress is transforming economy, trade and also their determinants and dynamics. Technological developments have serious effects on payment services, especially in the last 20 years. The world has been in a low inflation period compared with the previous periods. In this context, this study investigates the relationship between electronic payments and inflation dynamics in Turkey. A single equation model with the electronic payments variables is applied with quarterly data between 2005:3-2016:3. In the equation, the total number and total volume of transactions in the electronic fund transfer system are used as proxies for the real economy and monetary policy actions. The estimation results show that both the volume and number of transactions have effects on inflation dynamics. Teknolojik ilerlemeler ekonomiyi, ticareti, aynı zamanda bunların belirleyicileri ve dinamiklerini dö-nüştürmektedir. Özellikle son 20 yılda, teknolojik gelişmeler ödeme sistemleri üzerinde ciddi etkilere yol açmıştır. Dünya daha önceki dönemlerle kıyaslandığında daha düşük enflasyonun yaşandığı bir dönemdedir. Bu bağlamda olmak üzere, çalışmamız Türkiye'de elektronik ödemeler ile enflasyon dinamikleri arasındaki ilişkiyi araştırmaktadır. 2005:3-2016:3 dönemleri arasındaki 3'er aylık veriler kullanılarak elektronik ödemeler değişkenlerini içeren tek denklemli bir model uygulanmaktadır. Denklemde elektronik fon transfer sistemin-deki toplam işlem sayısı ve toplam işlem hacmi reel ekonomi ve para politikası işlemleri için vekil olarak kullanılmaktadır. Tahmin sonuçları hem işlem sayısı hem de işlem hacminin enflasyon dinamikleri üzerinde etkili olduğunu göstermektedir.
... People can access the internet and use mobile phones to pay bills and make online payments at any place and time. An increase in the number of credit cards used indicates the higher demand for money (Bashayreh et al., 2019). Debit and credit cards are also contributing to the growth of the cashless society by providing the option of digital payment. ...
... People can access the internet and use mobile phones to pay bills and make online payments at any place and time. An increase in the number of credit cards used indicates the higher demand for money (Bashayreh et al., 2019). Debit and credit cards are also contributing to the growth of the cashless society by providing the option of digital payment. ...
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This research investigates the factors that are associated with financial inclusion, particularly, how financial inclusion is associated with electronic payments in Thailand. This study uses Global Findex to compile financial information from 147 countries, and uses Partial Least Square Structural Equation Modelling for the analysis. The empirical findings show that financial inclusion has the most significant effect on the Bank of Thailand’s automated high-value transfer network, followed by online retail funds transference, bulk payments, and credit card payments. Moreover, it is found that the quality of financial products and service delivery significantly affected financial inclusion at a level of 1%.
... • Digitisation of cash-payments is introducing other people to use transaction facilities at banks. Study results in Jordan revealed that both GDP growth and the growth of visa cards number of each bank have a positive and significant effect on the demand for money (Bashayreh et al., 2019). ...
... • Digitisation of cash-payments is introducing other people to use transaction facilities at banks. Study results in Jordan revealed that both GDP growth and the growth of visa cards number of each bank have a positive and significant effect on the demand for money (Bashayreh et al., 2019). ...
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This paper discusses whether the use of credit cards reduces aggregate money holdings in an economy. Applying and modifying the Baumol-Tobin model (Baumol Quarterly Journal of Economics 66:545–556, 1952 and Tobin Review of Economics and Statistics 38(3):241–247, 1956), it studies how much money a credit card bank would normally maintain to support retail trade, and shows that whether or not the use of credit cards actually reduces the aggregate demand for money depends on how often consumers visit the bank and how long it takes to clear a check. With innovations in the banking industry such as ATMs, online banking, and other electric funds transfer services, the cost of visiting banks (i.e., switching funds between a checkable account and an interest-earning account) is now very low. For the whole economy, as a result, the use of credit cards may not necessarily reduce aggregate money holdings. KeywordsAggregate money holdings–Credit card