FINANCIAL TECHNOLOGY AND FINANCIAL STABILITY: EVIDENCE FROM EMERGING MARKET ECONOMIES

Abstract

This study explores the influence of financial technology adoption on financial stability across 35 emerging market economies over the period 2015–2024. A fintech adoption index is constructed using data from the GSMA mobile money metrics, World Bank database, and Bank for International Settlements Fintech Statistics, including indicators such as mobile payment transactions, transaction volumes, and the number of fintech startups. Principal component analysis is employed to reduce dimensionality and enhance the validity and comparability of the index across countries and time. To assess the relationship between fintech adoption and financial stability, this study applies the cross-sectionally augmented autoregressive distributed lag model, which is particularly suitable for panel datasets with mixed integration orders and cross-sectional dependence features commonly observed in macroeconomic analyses of emerging economies. Regulatory quality, measured using the World Bank’s Worldwide Governance Indicators, is examined as a moderating factor. The results reveal that higher levels of fintech adoption improve financial stability, especially in environments with stronger regulatory frameworks. Robustness is confirmed through several diagnostic checks, including the CIPS unit root test, alternative model specifications, and interaction term analysis.

Keywords: Fintech Adoption, Financial Stability, Emerging Markets, Regulatory Quality