High-Speed Internet, Financial Technology, and Banking
Abstract
Exploiting the staggered arrival of fiber-optic submarine cables, we show that high-speed internet promotes the role of banks and credit in Africa. Variation within country and across multicountry bank networks indicates that high-speed internet induced a 22% expansion in credit supply. We investigate the role of plummeting telecommunication costs in promoting the bank adoption of new financial technologies and study a specific technology used in the interbank market, the real-time gross settlement system (RTGS). We find that upon connecting to high-speed internet, banks adopt the RTGS more extensively, reduce inside liquidity, and increase interbank transactions and lending. We also observe that high-speed internet particularly strengthens firms in countries with weak preexisting interbank markets.
This paper was accepted by David Sraer, finance.
Funding: This work was supported by a Private Enterprise Development in Low Income Countries (PEDL) of the Centre for Economic Policy Research (CEPR) grant and Università Bocconi.
Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2023.4703.
