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Bank of Finland Research Discussion Papers, Bank of Finland

No 19/2012:
Retail payments and economic growth

Iftekhar Hasan (), Tania De Renzis () and Heiko Schmiedel ()

Abstract: This paper examines the fundamental relationship between retail payments and overall economic growth. Using data from across 27 European markets over the period 19952009, the results confirm that migration to efficient electronic retail payments stimulates overall economic growth, consumption and trade. Among different payment instruments, this relationship is strongest for card payments, followed by credit transfers and direct debits. Cheque payments are found to have a relatively low macroeconomic impact. Retail payment transaction technology itself is also associated positively to real economic aggregates. We also show that initiatives to integrate and harmonise retail payment markets foster trade and consumption and thereby have a beneficial effect for whole economy. Additionally, the findings reveal that the impact of retail payments on economic growth is more pronounced in euro area countries. Our findings are robust to different regression specifications. The study supports the adoption of policies promoting a swift migration to efficient and harmonised electronic payment instruments.

Keywords: retail payments; economic growth; financial development; (follow links to similar papers)

JEL-Codes: G20; G21; (follow links to similar papers)

37 pages, April 20, 2012

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