Impact of Financial Factors on Digital Economy: Assessing The Role of Government Intervention and Literacy Rate

Abstract

This study explores the interplay between financial development, technological innovation, financial inclusion, financial globalization, government intervention, and literacy levels, and their collective impact on the digital economy in 44 Asian countries from 2003 to 2020. The findings reveal that financial development significantly enhances the digital economy by providing necessary infrastructure, increasing access to capital for tech firms, and fostering consumer confidence. Technological innovation is identified as a primary driver, with substantial investments in R&D and support for tech startups leading to robust digital economic growth. Financial inclusion profoundly impacts the digital economy by broadening access to financial services for underserved populations, thus enabling greater participation through digital banking and mobile money services. Financial globalization also positively affects the digital economy by integrating financial markets and facilitating cross-border transactions, enabling the transfer of capital, technology, and best practices. Government intervention serves as a critical mediator, with effective regulatory frameworks, supportive policies, and investments in digital infrastructure significantly enhancing the digital economy. However, excessive intervention may stifle innovation, emphasizing the need for balanced government involvement. Literacy levels moderate these impacts, with higher literacy rates enhancing individuals' capacity to utilize digital technologies effectively. Policy recommendations include strengthening financial systems, promoting technological R&D, enhancing financial inclusion, facilitating financial globalization, and achieving balanced government intervention. These strategies are crucial for fostering a conducive environment for digital economic growth and maximizing the benefits of financial development, technological innovation, financial inclusion, and globalization in the Asian region.