The Role of Technology in Financial Development: An ARDL Bounds-Testing Analysis of Liberia, 1991–2021

Abstract This paper investigates the barriers, facilitators, and short- and long-run dynamics of the relationship between technology adoption and financial development, using Liberia as a case study. Motivated by a literature that identifies information gathering, financial-service delivery, and financial inclusion as the principal channels through which technology affects finance, but that rarely isolates the individual contribution of specific technology-adoption proxies, the paper estimates an Autoregressive Distributed Lag (ARDL) bounds-testing model linking two technology-adoption indicators, mobile cellular subscriptions (MCS) and internet penetration rate (IPR), to two financial-development proxies, net domestic credit (NDC) and broad money supply (M2), using annual Liberian data for 1991–2021. Unit-root tests confirm that the study’s variables are integrated of mixed order, justifying the ARDL approach. Bounds tests confirm cointegration for both financial-development specifications. In the short run, both mobile cellular subscriptions and internet penetration are negatively and significantly associated with net domestic credit and money supply, consistent with a substitution effect in which mobile-money and digital-payment channels initially reduce reliance on formal credit and cash holdings; error-correction terms indicate that deviations from long-run equilibrium are corrected at 70.5 percent (NDC) and 77.2 percent (M2) per year. Post-estimation diagnostics show no evidence of serial correlation or heteroscedasticity, and residuals are normally distributed and parameter-stable for both specifications. The results indicate that barriers such as deficient infrastructure and limited digital literacy, and facilitators such as telecommunications-sector engagement and government policy, jointly determine the pace at which technology adoption translates into financial development in a low-income, post-conflict economy.