Are Internet and Education Enough for Digital Financial Inclusion? The Moderating Role of Institutional Quality

Abstract

This paper explores why despite the recent proliferation of internet penetration, educational attainment, and digital-financial infrastructure, the extent of digital-cashless transactions is low. We examine if the presence of strong institutions, in the form of rule of law and low corruption, mitigate the concerns associated with cashless transactions. We conduct this study in the backdrop of the existing literature, which demonstrates that consumers avoid online financial services due to concerns about potential online scams or frauds. Based on the cross-section of 139 countries, spread over three years and employing panel data estimation models, probit models, and instrumental variable models, this study demonstrates that a country’s institutional quality enhances the positive effect of internet penetration and educational attainment on cashless transactions. Our findings are robust to year and continent fixed effects and different indicators for digital financial inclusion and institutional quality.