The Relationship Between Electronic-Money Penetration and Household Consumption: VECM Granger Causality Analysis

Abstract

The development and use of Electronic Money (e-money) remain one of the most discussed topics in developing countries, yet literature on the relationship between e-money penetration and household consumption remains negligible. Available literature confirms that e-money penetration has a significant impact on economic activity in both developed and emerging economies. In Botswana, the advancement of e-money is highly associated with the forces of consumer demand and the supply of e-money products in the market. However, the impacts of e-money on household consumption are not known. This paper, therefore, examines the causal link between e-money (EM) penetration and Household Consumption (HC) using quarterly data over the period 2007-2017. The study uses Granger causality test based on the Vector Error Correction Model. The empirical results provide evidence of the causal impact of household consumption on e-money penetration in Botswana only in the short-run. In addition, the empirical results also confirm that if the use of electronic payment technologies is developed in the long-run, e-money penetration would predict household consumption in Botswana. It can be concluded that the growth impact of e-money on household consumption is still insignificant in Botswana, but in the long-run the use of e-money technologies can impact household consumption. It is therefore, important that the government and financial service providers continue to provide a more conducive environment to increase the electronic payment outlets.