From Digital Development to Effective Governance: Evidence on The Mediating Role of Fintech Adoption
DOI:
https://doi.org/10.54938/ijemdss.2026.05.3.773Keywords:
Digital economy, Financial literacy, Government effectiveness, Fintech adoption, Institutional performance, System GMMAbstract
The current study aims to analyze the effect of the digital economy and financial literacy on government effectiveness, with the use of fintech adoption as a mediation channel for transforming structural capabilities into governance results. While there is considerable literature available on digital transformation, financial literacy, and government effectiveness, there is relatively little empirical research on the use of fintech adoption as a means to operationalize structural capabilities into governance results in a consistent framework. To fill this research gap, NIE and DOI theories are used to elaborate on how the capabilities in the digital infrastructure and financial sector facilitate the process of governance by reducing institutional friction via the adoption of fintech systems.
In the current study, panel data of 82 countries is used for the period 2000-2024. A two-stage System GMM estimator is used to deal with issues of endogeneity, persistence, and unobserved heterogeneity. The estimation technique uses internal lag instruments, control of instrument proliferation, and several post-estimation diagnostic tests (Hansen test for overidentifying restrictions and Arellano-Bond serial correlation tests). The indirect effect model of mediation is used for the dynamic panel data framework.
The results show that both the digital economy and financial literacy have positive effects on government effectiveness. Moreover, the adoption of fintech positively affects the performance of governance and partially mediates the relation between the digital economy, financial literacy, and government effectiveness. It can be stated that digital technologies and financial literacy are not enough for enhancing governance without using them as effective tools of digital financial systems that increase transparency, administrative effectiveness, coordination, and service delivery.
This research contributes to the theory of governance and digital transformation through an institutional approach to explain the mechanism of digital-financial capabilities that affect governance through fintech adoption. The implications of the research findings for governance and regulation policies are to develop an institutional strategy for governance that would incorporate development of the digital economy, financial literacy, and fintech ecosystems.
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Copyright (c) 2026 Abdul Manan, Abdul Razzaq, Kiran Afzal
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