The rapid expansion of digital payment systems has reshaped household consumption dynamics, yet their interaction with financial development remains insufficiently understood. While digital infrastructure and financial deepening are both associated with improved consumption-related activity, their joint effects may vary across economic environments. Using an unbalanced panel of G20 countries over the period 2005–2023, this study examines the direct and conditional effects of digital infrastructure and financial development on household consumption dynamics. The empirical analysis employs second-generation panel techniques, including the Cross-sectionally Augmented IPS (CIPS) unit root test, the Westerlund cointegration approach, and the Common Correlated Effects Mean Group (CCE-MG) estimator, which accounts for cross-sectional dependence and heterogeneity. The results indicate that both internet usage and financial development are positively associated with household consumption. However, the interaction term is negative and statistically significant, suggesting that the marginal effect of digital infrastructure weakens as financial development increases. Robustness checks further indicate that this relationship is primarily associated with domestic consumption dynamics and does not extend to trade openness. These findings highlight the conditional relationship between digital infrastructure and financial development, suggesting that the economic implications of digital transformation depend on the broader financial environment.
mbarek et al. (Mon,) studied this question.
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