The Role of Digital Payments in Driving Regional Economic Growth: A Panel Data Analysis with Structural Break

TL;DR

This study investigates how digital payments influence regional economic growth in Indonesia, revealing that their impact increased after COVID-19 and policy changes, using a novel structural break analysis method.

Contribution

It introduces a new method for analyzing structural breaks in panel data with interactive effects and applies it to digital payment impacts on regional economies.

Findings

Digital payments significantly affect income and consumption.

Impact of digital payments increased after COVID-19.

Structural breaks linked to COVID-19 and policy changes.

Abstract

Using a panel payment system dataset of thirty-three provinces in Indonesia, we examine the impact of digital payment on the regional economy, considering structural breaks induced by unprecedented events and policies. Digital payments were determined to significantly affect regional income and consumption before and after the identified breakpoint, with the impact greater following the break. Employing a novel method for structural break analysis within interactive effects panel data, we demonstrate that the break in retail payment models is due to COVID-19, and the break in the wholesale payment model is associated with the central bank's payment system policy.