This research project aims to investigate the relationship between high-speed internet, financial technology, and banking. The researcher will exploit a unique natural experiment, the introduction of high-speed internet in Africa, to shed light on the effects of fast internet on banking. High-speed internet in Africa took place through the installation of fiber-optic submarine cables connecting Asia and Europe to America. First, they plan to investigate whether the arrival of high-speed internet promotes the adoption of a financial technology central for bank intermediation: the real-time gross settlement system (RTGS). Second, they explore whether this new technology has the potential to affect bank liquidity management, leading to a reduction in liquidity hoarding and an increase in interbank transactions and private-sector lending.
For this project, the researcher will use an event-study design and analysis the five-year window around the arrival of the fiber-optic submarine cables. The main data will be sourced from Bankscope and BankFocus databases and TeleGeography maps, and then integrated with additional data from the World Bank. The final sample is expected to span 37 African coastal countries. Using the event-study design, the first objective is to verify whether, after the arrival of high-speed internet, treated countries are more likely to adopt RTGS. The second objective is to verify whether banks in treated countries increase their use of the interbank market, lower their liquidity hoarding, and expand loans to private enterprises.
By analysing the impact of financial infrastructures on African developing economies, this research will show how access to high-speed internet may foster the productivity of the banking sector through the adoption of effective financial technology (e.g. RTGS). Thus, this project will highlight the benefits of investing in high-speed internet in developing countries, by demonstrating how fast internet affects the business of local firms. This project will also be the first to study how financial technology affects banks and their liquidity management function, going beyond the competition-enhancing effects of fintech.
